IFC Exam Dumps - CSI Canadian Investment Funds Questions and Answers

The current yield on a bond is the annual interest payment divided by the current market price of the bond. In this case, the annual interest payment is 7% of the face value, which is $700. The current market price of the bond is $9,230. Therefore, the current yield is:

9230700​×100%=7.58%

The current yield is different from the coupon rate, which is the annual interest payment divided by the face value of the bond. The coupon rate does not change over the life of the bond, but the current yield changes as the market price of the bond fluctuates. References:

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

Financial circumstances are a critical component of the Know Your Client (KYC) process, as they determine the client’s ability to commit savings to investments and the level of risk they can assume. Mortgage documents provide insights into the client’s debt and obligations, which are essential for assessing financial circumstances. The feedback from the document states:

"Financial circumstances are an important consideration in judging the suitability of investments, because they determine the amount of savings clients can commit to investing and the level of risk they can assume. Marc’s client’s mortgage document will give Marc valuable insights into the level of debt and mortgage obligations his client has, helping in evaluating the client’s financial circumstances."

The representative failed to verify that the client’s KYC information was current, which is critical for assessing suitability, especially given the client’s recent job loss. The feedback from the document states:

"Standard A - Duty of Care starts with the Know Your Client rule. It is impossible to apply due diligence and assess the suitability of an investment if the client’s information has not been updated. Client account documentation should reflect all material information about the client’s current status, and should be updated to reflect any material change to the client’s status in order to assure suitability of investment recommendations."

Sean’s distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units. When a mutual fund declares a distribution, it reduces its NAVPU by the amount of the distribution per unit. In this case, the NAVPU drops from $21 to $19.75 after the distribution of $1.25 per unit. Sean’s distribution is $625 ($1.25 x 500 units), which he reinvests in the mutual fund at the new NAVPU of $19.75. He receives

additional units. The total value of Sean’s mutual fund holdings after the distribution and reinvestment is

(500+31.65)×19.75=$10,500

, not $9,875. The NAVPU of the mutual fund does change after the distribution, regardless of whether Sean reinvests his distribution or not. References: [Unit 7: Mutual Funds Administration]

In a booming economy, equity growth mutual funds provide the best opportunity for capital gains. In a non-registered account, capital gains are the most tax-efficient form of income since only 50% is taxable.

Bonds, mortgages, and money market funds primarily generate interest income, which is fully taxable at the investor’s marginal rate.

Thus, the most tax-efficient choice is an equity growth fund.

The marginal tax rate is the percentage of tax that an individual pays on the last dollar of income earned in a given year. It is also the tax rate that applies to any additional income earned in that year. The marginal tax rate varies depending on the individual’s income level and tax bracket. For example, if an individual’s taxable income for the year is $50,000 and the tax rate for that income bracket is 20%, then the marginal tax rate is 20%. This means that the individual pays 20% tax on the last dollar of income earned, as well as on any additional income earned above $50,000.

References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 6: Taxation, Section 5.6.1: Income Tax 1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.6.1 2

Beta measures systematic (market) risk:

Beta = 1.0 → moves with market.

Beta < 1.0 → less volatile, more defensive.

Beta > 1.0 → more volatile, aggressive.

Defensive stocks (e.g., banks, utilities) typically have low betas.

Given options:

0.5 (A) = least risky, most defensive.

2.0 (B) = highly aggressive.

1.0 (C) = average risk.

1.5 (D) = above-average risk.

The custodian, typically a trust company, receives and holds all funds from investors and other sources, managing the fund’s assets and expenses. The feedback from the document states:

"The Custodian. When a mutual fund is established, a separate organization, most often a trust company, is appointed as the fund’s custodian. The custodian receives and holds the fund’s money obtained from all sources – investors buying the fund’s units or shares, income earned by the fund’s investment portfolio, proceeds from the sale of the fund’s investments, holds all the fund’s assets and distributes the fund’s money to pay the fund’s expenses."

When anticipating rising interest rates, a fund manager using an interest rate anticipation philosophy should reduce interest rate sensitivity by increasing holdings in short-term T-bills and high coupon bonds, which are less affected by rate increases. The feedback from the document states:

"Interest rate anticipation is a fixed-income investing philosophy that involves moving between long-term government bonds and very short-term T-bills, based on a forecast of interest rates over a certain time horizon. Price sensitivity to interest rate movements increases as the term to maturity increases and the coupon decreases. Therefore, to avoid a large capital loss if interest rates rise, the fund manager would decrease the fund's interest rate sensitivity."