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A mutual fund sales representative is under pressure to meet certain sales objectives. However, he consistently ignores these quotas when making client recommendations. Which standard of conduct has he followed?
Answer : B
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.'
When you buy a put option, which of the following is TRUE?
Answer : A
A put option is a contract that gives the buyer the right, but not the obligation, to sell a set number of shares of an underlying asset at a set price within a specified time frame. The buyer of a put option expects the price of the underlying asset to fall below the strike price before the expiration date. Therefore, A is the correct answer. Reference:Put Option: What It Is, How It Works, and How to Trade Them,Put: What It Is and How It Works in Investing, With Examples,Put Options: Definition, Overview, and Example
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?
Answer : D
A life income fund (LIF) is a type of registered retirement income fund (RRIF) that can be used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income. A LIF cannot be withdrawn in a lump sum and has minimum and maximum withdrawal amounts each year. A LIF can only be funded by transferring money from a locked-in retirement account (LIRA) or another LIF. Therefore, D is the correct answer. Reference:Life Income Fund (LIF): Definition and How Withdrawals Work - Investopedia,Retraite Qubec - Characteristics of an LIF
Malik has been saving money for retirement but he is worried about the impact inflation may have on the value of his savings. He wants to purchase a bond that will give him a steady stream of income that is greater than the inflation rate. He has found a bond issued by a major airline with a market price of $9,200, a par value of $10,000, and a coupon rate of 6.75%. What is the current yield of this bond?
Answer : A
The current yield of a bond is the annual interest payment divided by the current market price of the bond. The annual interest payment is the coupon rate multiplied by the par value of the bond. In this case, the annual interest payment is:
6.75%10,000=675
The current market price of the bond is $9,200. Therefore, the current yield is:
9200675100%=7.34%
The current yield is higher than the coupon rate because the bond is selling at a discount, meaning that its market price is lower than its par value. This implies that the bond is offering a higher return than the prevailing market interest rate. However, the current yield does not take into account the capital gain or loss that will occur when the bond matures or is sold. A more accurate measure of the bond's return is the yield to maturity (YTM), which is the annualized rate of return that accounts for both the interest payments and the price change of the bond over its remaining term.
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section 5.2: Bond Pricing and Yield, page 5-61
Current Yield Definition - Investopedia2
Janine will celebrate her 71st birthday this year. She currently has a lot of money in a personal registered retirement savings plan (RRSP) and knows there are rules about what she can do with those funds. Which of the following is TRUE?
Answer : B
A registered retirement savings plan (RRSP) is a retirement savings and investing vehicle for employees and the self-employed in Canada. Contributions to an RRSP are tax-deductible and grow tax-deferred until withdrawal. However, RRSPs have a maturity date of December 31st of the year in which the holder turns 71. By then, the holder must convert the RRSP to a registered retirement income fund (RRIF), purchase an annuity, or withdraw the funds in cash (subject to tax). Therefore, B is the correct answer. Reference:Registered Retirement Savings Plan (RRSP): Definition and Types,Registered Retirement Savings Plan (RRSP) - Canada.ca
