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CIFC Questions and Answers

Question # 6

Which of the following could be a passively managed fund?

A.

commodity pool

B.

exchange traded fund (ETF)

C.

hedge fund

D.

labour-sponsored investment fund

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Question # 7

Your clients, Philip and Helen, have a disabled son, Alex, age 22. They want to set up a registered disability savings plan (RDSP) for Alex and have asked you for some information.

Which statement is TRUE?

A.

Philip and Helen's contributions are refundable to them.

B.

There is no annual or lifetime maximum limit on contributions.

C.

Alex must quality for the disability tax credit.

D.

Philip and Helen's contributions are tax-deductible.

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Question # 8

Which of the following best describes implied needs of your clients?

A.

They are needs reflected by statements made by clients regarding problems and dissatisfactions.

B.

They are statements made by you showing readiness to solve a client's problem.

C.

They are statements made by clients expressing the desire for lower commissions.

D.

They are statements of wants and needs made by clients.

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Question # 9

Wilma has always used the services of a tax preparation firm to file her taxes but is skeptical that she has really benefitted. This year she plans to file her own taxes for the first time.

What would be useful for her to know?

A.

Wilma's marginal tax rate may be lowered when tax deductions are applied to her total income.

B.

Wilma's top marginal tax rate will be applied to every taxable dollar when her tax return is filed.

C.

Wilma's tax deductions permit her to reduce her tax payable dollar-for-dollar.

D.

Wilma's non-refundable tax credits may only reduce her taxable income dollar-for-dollar.

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Question # 10

Sylvia decided to use the savings from her bank account to purchase a 5-year bond. The face value of the bond is $10,000, the market price is $9,230 and the coupon rate is 7%.

What is the current yield on the bond? Round to 2 decimal places.

A.

7.00%

B.

7.25%

C.

7.58%

D.

7.75%

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Question # 11

Eleanora receives a $500 eligible Canadian dividend from her mutual fund. Her federal marginal tax rate for the year is 29%. Assuming the enhanced gross-up of 38% and a federal dividend tax credit of 15.02%, how much federal tax will she pay on her dividend?

A.

$69.90

B.

$189.16

C.

$96.46

D.

$115.40

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Question # 12

Gregory is a conservative investor who wants to hold a portfolio of equity securities that would fall less than the overall market in a downturn.

Which of the following portfolios would you advise Gregory to invest in?

A.

a portfolio with a beta equal to 1

B.

a portfolio with a beta between 1 and 2

C.

a portfolio with a beta greater than 2

D.

a portfolio with a beta less than 1

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Question # 13

Which of the following statements best describes dollar-cost averaging?

A.

It is a type of systematic withdrawal program.

B.

It is buying a set dollar amount of a mutual fund on a regular basis

C.

It is the strategy of purchasing a set number of units of a mutual fund on a regular basis.

D.

It is making lump-sum purchases when the market price for a mutual fund is low.

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Question # 14

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?

A.

Include investments paying capital gains in the registered plan and foreign pay investments in the non-registered plan.

B.

Include domestic pay assets in the registered plan and foreign pay assets in the non-registered plan.

C.

Include interest paying investments in the registered plan and dividend paying investments in the non-registered plan.

D.

Include dividend paying investments in the registered plan and interest paying investments in the non-registered plan.

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Question # 15

Faruq is a Dealing Representative with Smart Planning Group, a mutual fund dealer. Faruq meets with his new client, Taline, and learns that she lives on a low, fixed income.

Taline tells Faruq that she wants to maximize her investment returns as high as possible to make up the difference. Taline also indicates that she cannot afford large investment losses because her income is low. Which of the following CORRECTLY describes how Faruq should assess Taline’s risk profile?

A.

Taline's risk profile should be "high"" because she is willing to accept risk in order to maximize her investment returns.

B.

Faruq should override the risk that Taline is able to accept because her return expectations cannot otherwise be met.

C.

Faruq should assess Taline's risk profile based on the higher of her: (1) risk tolerance and (2) risk capacity

D.

Taline's risk profile should be "low" because her risk capacity is low and she cannot afford lame investment losses.

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Question # 16

Over the course of a couple of weeks and several appointments, Harold was finally able to provide an investment solution for his new client, Felicia. It was a lump sum investment where they plan to see her

money grow for the next 5 years.

With regards to Know Your Client (KYC) requirements, what are Harold's responsibilities moving forward?

A.

Monitor investment performance to determine if the investment solution is on track to satisfy Felicia's financial needs.

B.

There are no other responsibilities for Harold to fulfill until the time horizon has been reached for this investment solution.

C.

Within 36 months of the implementation of the investment, Harold must review the KYC to ensure it is current.

D.

KYC does not need to be revisited or revised until there is a need to conduct additional trades for Felicia's account.

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Question # 17

Danica is looking for a mutual fund to hold in her non-registered account that provides a regular stream of income with potential for capital growth. She is having difficulty distinguishing between bond funds and dividend funds. Which of the following statements is TRUE?

A.

The return of dividend funds relies only on interest rates; whereas with bond funds, the return also depends on the general direction of stock markets.

B.

When interest rates rise, the net asset value per unit (NAVPU) of bond funds decreases; whereas with dividend funds it rises.

C.

Bond funds receive fixed interest payments from most of their investments.

D.

Bond fund distributions receive more favorable tax treatment than that of dividend funds.

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Question # 18

The Mutual Fund Dealers Association of Canada (MFDA) has strict rules concerning conflicts of interest. Which of the following is TRUE?

A.

Gifts and benefits may be provided to a client if your employer is aware of the benefits and has given approval.

B.

Activities that do not relate specifically to your employer need not be reported.

C.

Only actual conflicts must be reported to your employer. Potential conflicts need not be reported because they have not happened yet.

D.

Borrowing money from a client will always be acceptable provided there is a written contract detailing the nature of the agreement.

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Question # 19

Which of the following statements are CORRECT about labour sponsored investment funds (LSIFs)?

A.

LSIFs are appropriate for investors with a short-term time horizon.

B.

All provinces offer some sort of additional tax credit for investors.

C.

LSIFs are suitable for investors with a low risk tolerance.

D.

Investors will forfeit their tax credits if they redeem their LSIF investment before 8 years have elapsed.

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Question # 20

Davis invested in a tactical asset allocation fund in his non-registered investment account. Distributions from the mutual fund are paid directly to Davis and not reinvested. Assuming a federal marginal tax rate

of 26%, dividend gross-up rate of 38% and federal dividend tax credit rate of 15%, which type of distribution would result in the lowest amount of tax payable?

A.

Capital Dividend

B.

Capital Gain

C.

Eligible Dividend

D.

Interest

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Question # 21

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?

A.

retractable

B.

participating

C.

convertible

D.

redeemable

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Question # 22

What type of mutual fund can invest in specified derivatives and forward contracts for grains, meats, metals, energy products, and coffee?

A.

global equity fund

B.

commodity pool

C.

labour-sponsored investment fund

D.

specialty fund

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Question # 23

Darryl has a diversified investment portfolio of mutual funds in a non-registered account with Investwell Mutual Funds, a mutual fund dealer. Darryl’s diversified portfolio is composed of 3 mutual funds. Each mutual fund is currently worth about $100,000. The ABC Canadian Equity Fund has a total return of 6%, the DEF Bond Fund has a total return of 8% and GHI Global Equity Fund has a total return of 10%. Darryl wants to make an in-kind contribution to his registered retirement savings plan (RRSP) account. He has unused RRSP contribution room of $60,000.

From a tax-efficient viewpoint, which funds contribute in-kind to his RRSP account?

A.

Move the DEF Bond Fund to the RRSP.

B.

Move the GHI Global Equity Fund to the RRSP

C.

Move $20,000 from each of the three funds to the RRSP.

D.

Move the ABC Canadian Equity Fund to the RRSP.

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Question # 24

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

A.

The manager does not believe in using benchmarks.

B.

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

C.

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

D.

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

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Question # 25

Marta is turning 71 years old this year. She will have to convert her registered retirement savings plan (RRSP) to a registered retirement income fund (RRIF). Which of the following statements is TRUE?

A.

She will be able to continue contributing to her RRIF and be subject to the same annual limits as her RRSP.

B.

When she converts her RRSP to a RRIF, she will incur a tax liability.

C.

She will be subject to annual maximum withdrawal limits.

D.

She does not have to withdraw the minimum amount this year.

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Question # 26

Based on your discussions with your client Sierra, you believe an asset allocation of 30% fixed income and 70% equities will help her achieve her long-term goals. What type of asset allocation strategy are you implementing?

A.

tactical

B.

strategic

C.

optimal

D.

lifecycle

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Question # 27

Lucas is 60 years old and continues to work. He presently is a plan holder of a registered retirement savings plan (RRSP). He is considering changing his RRSP to a registered retirement income fund (RRIF).

Which of the following statements is CORRECT?

A.

There is no minimum age to be an annuitant to a RRIF.

B.

Once he changes his RRSP to a RRIF, his unused total RRSP contribution room is lost.

C.

Minimal withdrawals are required to start in the current calendar year his RRIF was established.

D.

Investments that qualify as an eligible investment for a RRIF are different than for an RRSP.

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Question # 28

What type of shares offer its shareholders the opportunity to receive additional dividends if the company’s profit exceeds a stated level?

A.

Redeemable preferred shares

B.

Cumulative preferred shares

C.

Convertible preferred shares

D.

Participating preferred shares

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Question # 29

Which of the following applies to a mutual fund trust?

A.

It has a board of directors and shareholders.

B.

It has unitholders.

C.

It is not efficient at passing through income to investors.

D.

It is always closed-end.

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Question # 30

Your client, Cosmo, recently inherited $50,000 from his uncle. He wants to use this money towards his retirement savings. Cosmo is a 50-year old, self-employed carpenter and he earns on average $65,000

per year. He has a registered retirement savings plan (RRSP) with the bank worth $425,000 and a tax-free savings account (TFSA) worth $46,000. He started saving when he was 25 years old and has always

made his own investment decisions. His money is mostly invested in balanced funds. He feels most comfortable with these types of mutual funds since they offer potential investment growth but without being too aggressive. Cosmo has no other assets.

What additional information do you need about Cosmo to fulfill your know your client obligation?

A.

time horizon

B.

income and net worth

C.

risk tolerance

D.

investment objectives

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Question # 31

Khuyen is a Dealing Representative for Stark Contrast Investments. Her dealer has relationships with 20 different mutual fund families. This gave her the flexibility to sell two different types of funds from two

different fund families to her client, Bao. $5,000 was invested in the Blue Moon Global Balanced fund and an additional $5,000 was invested in the Orange Sun Asset Allocation fund. Khuyen has been

reviewing the performance of both funds and has determined that Bao would be better off being fully invested in the Blue Moon Global Balance fund. Bao had previously signed a Limited Authorization Form

(LAF) for Khuyen, so she goes ahead and does not worry about consulting with Bao before making the change.

What type of activity has Khuyen performed?

A.

Top-down management

B.

Churning

C.

Discretionary trading

D.

Value investing

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Question # 32

Every February, Reginald, a Dealing Representative, feels pressured by his Manager to generate new registered retirement savings plans (RRSP) and contributions to assist the branch in meeting broader business targets. Reginald is nearing the end of February, and he has a meeting with a new client, Orel. Orel wants to open a tax-free savings account (TFSA) to develop emergency savings because he does not want to worry about his withdrawals being taxed. Reginald suggests that if Orel were to contribute to an RRSP first, then the resulting tax savings could be used to fund a new emergency account.

In relation to account suitability, what can be said about Reginald’s advice?

A.

Recommending an investment solution that addresses two needs is putting Reginald's client's interest first

B.

Based on Orel's stated need, recommending an RRSP contribution is unsuitable.

C.

Reginald is putting the client's interest first by informing Orel why he should change his purpose for investing.

D.

By convincing Orel to contribute an RRSP, instead of a TFSA, Reginald has put his client's interest first.

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Question # 33

At the close of business, Great Lengths Equity Fund had total assets of $135 million and total liabilities of $10 million. They had 11 million units outstanding. In addition, their current assets totalled $13 million and current liabilities were $3 million. Which of the following statements regarding Great Lengths Equity Fund’s net asset value per unit (NAVPU) is correct?

A.

The NAVPU is the total liabilities divided by the number of outstanding units.

B.

Current assets and current liabilities are used in the NAVPU calculation.

C.

There is not enough information available to calculate the NAVPU.

D.

Great Lengths Equity Fund's NAVPU is $11.36.

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Question # 34

Maalik opens an account for a new client, John. During the new account process, Maalik determines that he will need to confirm John’s identity. Which of the following statements about Maalik’s identification requirements is CORRECT?

A.

If Maalik determines that there is anything suspicious about John’s transaction, he is required to report the matter to his dealer. The dealer must report the matter to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

B.

If Maalik learns that John is the president of a state-owned company, Maalik is required to report John as a Politically Exposed Foreign Person (PEFP) to his dealer. If John is not a US person, the dealer must report the account to the Internal Revenue Service (IRS).

C.

If John wants to make a large cash deposit of $10,000 or more, Maalik is required to collect personal information about John and report it to his dealer. The dealer must report the information to the Canada Revenue Agency (CRA).

D.

If John attempts to make a suspicious deposit, Maalik is required to report the attempt to his dealer. The dealer must keep records of attempted suspicious transactions that are not reported to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

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Question # 35

Iliana owns 1,000 participating preferred shares in the First Canadian Bank. Which of the following features are characteristic of her investment?

A.

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

B.

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

C.

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

D.

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

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Question # 36

A client has $950,000 in his RRSP account and $550,000 in his non-registered account held in nominee name with Tradewell Mutual Funds.

In the event of his dealer, Tradewell Mutual Funds declaring insolvency, what is the total amount the client be eligible to receive from the Mutual Fund Dealers Association of Canada Investor Protection Corporation (IPC)?

A.

The client will not be eligible for any coverage.

B.

The client will be eligible for coverage of $950,000.

C.

The client will be eligible for coverage of $1,500.000.

D.

The client will be eligible for coverage of $550,000.

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Question # 37

Lior is considering an investment that gains exposure to companies that trade on the Toronto Stock Exchange (TSX). He is not sure what the differences are between a Canadian equity fund and a Canadian dividend fund.

What would you tell him?

A.

Equity funds are more appropriate than dividend funds if Lior requires a steady flow of income.

B.

Dividend funds generate tax-preferred income while income from equity funds is fully taxable.

C.

Dividend funds tend to be less volatile and lower risk than equity funds.

D.

Equity funds hold common shares while dividend funds hold only preferred shares.

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Question # 38

Which statement regarding the underwriting process and over-the-counter (OTC) markets is CORRECT?

A.

Corporations must have their shares listed both on an exchange and the OTC market during the underwriting process.

B.

During the underwriting process investment bankers raise investment capital from investors on behalf of corporations and governments issuing securities.

C.

Many new stock issues that are underwritten by securities firms are first listed on a stock exchange before they are sold over-the-counter.

D.

The disclosure standards for stock exchanges are not as stringent as those imposed by the OTC market.

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Question # 39

On January 3, John invests $500 in the Blue Sky U.S. Equity Fund. On July 1 of the same year, he invests another $500 into the same mutual fund. Information about the net asset value per unit (NAVPU) at the time of each transaction is provided below. Given this information, what will be the value of John's investment on December 31 of this year (please ignore transaction costs and distributions)?

A.

$1,198

B.

$1,216

C.

$1,256

D.

$1,332

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Question # 40

Sarah and Kyle are a married couple. They are both 34 years of age and work as teachers. Their combined annual income is $130,000. They are able to save $800 each month. They own a home worth $340,000 with a $120,000 mortgage. Since they work for the same employer, they have the same defined benefit pension plan. Other than a tax-free savings account (TFSA) in Kyle’s name with $5,000, they do not have any other assets.

They are avid sailors and want to save towards a purchase of a sailboat. For the type of sailboat they want, they estimate it should cost around $65,000. They want you to recommend an investment for their monthly savings to help them achieve their goal faster.

What question should you ask them next?

A.

How would you feel if you lost part of your money in the short-term?

B.

What is your investment objective for these savings?

C.

What is your net worth?

D.

How much do you make individually each year?

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Question # 41

Throughout the year, the Redwood Global Equity Fund generated the following outcomes:

. $1.00 per unit of interest income from Canadian treasury bills

. $2.50 per unit of dividend income from foreign corporations

. $7.75 per unit of capital gains from the sale of Canadian corporations

. $6.50 per unit of capital gains from the sale of foreign corporations

. $2.00 per unit of capital losses from the sale of foreign corporations

Given that the Redwood Global Equity Fund is structured as a mutual fund trust, which of the following statements is true?

A.

Redwood can flow the foreign dividends to unitholders, who can then take advantage of the dividend gross-up and tax credit mechanism.

B.

Unitholders will receive $12.25 per unit of net capital gains from Redwood, of which only 50% is subject to tax.

C.

Redwood can distribute the $2.00 per unit of capital losses to unitholders, who can then use them to offset their capital gains.

D.

Since Redwood pays the tax on foreign income, it does not distribute dividend or capital gains income from foreign sources to unitholders.

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Question # 42

Which of the following best describes how a target date fund works?

A.

Through the years, the asset allocation shifts from equities towards fixed income as the maturity date approaches.

B.

Through the years, the asset allocation shifts from fixed income towards equities as the maturity date approaches.

C.

The mutual fund is constantly rebalanced to maintain an even split between equities and fixed income through the life of the mutual fund.

D.

In exchange for a lump-sum purchase the unitholder receives guaranteed monthly payments for life.

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Question # 43

Terri, 30 years old, is the marketing manager at Provincial Winery with an average annual income of $60,000. Her spouse Yvette, 28 years old, is a project manager with a telecommunications firm earning

$70,000 per year. You are helping them to organize their investments and are trying to assess their financial resources.

Which of the following is the best question to ask?

A.

Do you have any children?

B.

Do you have pension plans at work?

C.

When do you need the money?

D.

What is your investment experience?

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Question # 44

What does a normal yield curve look like?

A.

slopes upward to the left

B.

is flat and has no slope

C.

slopes down to the right

D.

slopes upward to the right

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Question # 45

Which of the following statements about registered education savings plans (RESPs) is CORRECT?

A.

Contributions to RESPs are tax deductible.

B.

There is a yearly contribution limit per beneficiary.

C.

RESPs must be collapsed by the end of the 31st year of its starting date

D.

Contributed funds grow tax-free within the plan.

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Question # 46

Megan purchases a treasury bill for $98,200. When it matures for $100,000, how does Megan treat the $1,800 difference?

A.

as interest income

B.

as a capital gain

C.

as a dividend

D.

as return of capital

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Question # 47

Which of the following qualifies as personal information under the Personal Information Protection and Electronic Documents Act (PIPEDA)?

A.

employee's business address

B.

employee's name

C.

employee's credit record

D.

employee's business telephone number

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Question # 48

Ellen and her only son Jeff live on the family farm with her father George. Jeff is five years old and Ellen has decided that it is time to start saving for Jeff’s post-secondary education. She has called you to ask about registered education savings plans (RESPs).

Which of the following statements is TRUE?

A.

If Jeff qualifies for additional CESG. his CESG lifetime maximum increases to $10,000.

B.

If Jeff decides not to pursue a post-secondary education, he can keep all the CESG but it then becomes taxable.

C.

George may open an RESP for Jeff but it will not quality to receive Canada Savings Education Grants (CESGs).

D.

If Ellen receives the National Child Benefit Supplement (NCBS), Jeff may be eligible for the Canada Learning Bond

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Question # 49

Tony, the investment manager of True North Canadian Equity Fund is deciding on some new investments. He 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 narrows down his selection to an oil supply firm in Medicine Hat and a drilling company in Halifax.

What investment approach is Tony employing?

A.

bottom-up

B.

growth at a reasonable price (GARP)

C.

value investing

D.

top-down

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Question # 50

Xerxes, 45 years old, is a successful architect, having an annual income of $185,000. He has around $10,000 in his non-registered account, which he is looking to invest in a tax-efficient manner.

From the following options, which would be the most tax-efficient?

A.

target date fund

B.

bond fund

C.

asset allocation fund

D.

Canadian equity index fund

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Question # 51

Nelson is a Dealing Representative with True Wealth Advisors Inc., a mutual fund dealer. Nelson follows proper procedures related to his firm’s Relationship Disclosure Information (RDI). Which of the following CORRECTLY describes how Nelson is permitted to evidence that he satisfied his RDI obligation?

A.

Nelson may retain a copy of the RDI in the client file with detailed notes to confirm that he provided and explained the RDI to the client.

B.

Nelson may deliver the RDI to clients who request it and keep detailed notes of the clients who were provided with the RDI.

C.

Nelson can formalize his relationship under the RDI using a Letter of Engagement that specifies duties, responsibilities, and level of service.

D.

Nelson can record detailed notes which confirm that he provided and explained the Fund Facts to the client within 2 days of the RDI.

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