Free CSI IFC Practice Exam with Questions & Answers | Set: 4

Comprehensive and Detailed Explanation From Exact Extract:

The current yield for a money market fund is calculated by annualizing the 7-day yield: (7-day yield × 365 / 7). For a 7-day yield of 0.05% (0.0005), the calculation is: 0.0005 × 365 / 7 = 0.02607 or 2.61%. The feedback from the document states:

"The current yield for a money market fund is calculated as the most recent seven-day yield on the fund, adjusted to an annual rate. The formula is: Current yield = (Seven-day yield × 365 / 7). In this case the current yield is (0.0005 × 365 / 7) = 0.0261."

Comprehensive and Detailed Explanation From Exact Extract:

A negative Sharpe ratio indicates that the fund’s return is less than the risk-free rate, as the numerator (Fund Return - T-bill Rate) is negative. The feedback from the document states:

"The Sharpe ratio is calculated as (Fund Return - T-bill Rate) ÷ Fund Standard Deviation. A negative Sharpe ratio means the mutual fund has a return less than the risk-free rate, as the numerator of the ratio would be negative."

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:

9200675​×100%=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.

The Personal Information Protection and Electronic Documents Act (PIPEDA) is a federal law that imposes requirements on the collection, use, and disclosure of personal information by organizations in the private sector that are subject to federal regulation, such as banks, telecommunications, transportation, and broadcasting. PIPEDA also applies to organizations that operate in provinces or territories that do not have substantially similar privacy legislation, such as Alberta, British Columbia, and Québec. PIPEDA does not apply to consumers, departments and agencies of the Government of Canada, or departments and agencies of provincial governments, as they are governed by other privacy laws or regulations12

References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 3: Privacy Legislation, Section 7.3.1: Personal Information Protection and Electronic Documents Act (PIPEDA) 1; Office of the Privacy Commissioner of Canada website

Comprehensive and Detailed Explanation From Exact Extract:

The law of supply dictates that when demand exceeds supply, prices rise, prompting producers to increase production to meet demand and maximize profits. The feedback from the document states:

"The law of supply states that when demand is greater than supply, the price increases, and producers increase production to meet demand and maximize profit."

A Registered Education Savings Plan (RESP) is a tax-advantaged savings plan that helps parents and family members save for a child’s post-secondary education. The government also contributes to the plan through the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), depending on the family income and the amount of contributions. However, there are some rules and limits that apply to RESP contributions and government grants. One of them is the lifetime contribution limit, which is the maximum amount that can be contributed to an RESP for a beneficiary from all sources. The lifetime contribution limit is $50,000 per beneficiary, regardless of how many RESPs are opened for them or who contributes to them. Therefore, statement A is correct. Justin and Yvonne may contribute a combined lifetime maximum of $50,000 for Grace to their RESP.

The other statements are incorrect for the following reasons:

Statement B: RESPs are not tax-free investment plans. They are tax-deferred plans, meaning that the contributions are made with after-tax dollars and the investment income earned in the plan is not taxed until it is withdrawn as an educational assistance payment (EAP) for the beneficiary. The EAPs are taxed in the hands of the beneficiary, who usually has little or no income and pays little or no tax.

Statement C: There is no annual contribution limit for RESP contributions. However, there is an annual limit for the CESG, which is 20% of the first $2,500 contributed per beneficiary per year, up to a maximum of $500 per year. The CESG also has a lifetime limit of $7,200 per beneficiary.

Statement D: Contributions made to an RESP are not eligible for a tax deduction in the year they are contributed. They are made with after-tax dollars and do not reduce the contributor’s taxable income.

Comprehensive and Detailed Explanation From Exact Extract:

Discretionary income is the amount left after subtracting expenses from total income, available for savings or investments. Total income = $100,000 (employment) + $10,000 (investments) = $110,000. Subtracting $95,000 in bills gives $110,000 - $95,000 = $15,000. The feedback from the document states:

"Discretionary income eligible for savings and investments is the difference between the amount of money coming in from employment and other sources and the amount of money going out to pay bills. In this example, $100,000 + $10,000 - $95,000 = $15,000."

Comprehensive and Detailed Explanation From Exact Extract:

Unique risk, also known as firm-specific risk, is reduced through diversification, as it relates to volatility caused by information specific to individual securities. The feedback from the document states:

"If a security’s price is affected by new information, and if new information arrives frequently, then its price will tend to be volatile and so will the returns that it generates. This source of volatility is specific to a given security and is known as unique risk. Diversifying a portfolio reduces unique risk."

A Canadian equity index fund is a type of mutual fund that invests in stocks that track a Canadian equity market index, such as the S&P/TSX Composite Index or the S&P/TSX 60 Index. These indices measure the performance of the largest and most liquid companies listed on the Toronto Stock Exchange (TSX). A Canadian equity index fund aims to replicate the returns of the index it follows, before fees and expenses. Therefore, this type of fund would be best for Karen, who has a long time horizon, is comfortable with risk and volatility, and is primarily interested in growth. She also wants a mutual fund that will closely match what she sees on the TSX. References: CIBC Canadian Equity Index ETF, Top Canadian Index Funds of 2023 | The Motley Fool Canada

The value of John’s investment on December 31 of this year can be calculated by multiplying the number of units he holds by the net asset value per unit (NAVPU) on that date. Since John invested $500 on January 3 and $500 on July 1, he holds a total of 125.6 units (62.8 units from the first investment and 62.8 units from the second investment). Therefore, the value of his investment on December 31 will be 125.6 units x $9.55 NAVPU = $1,256.