D. Income received from the plan is eligible for pension income splitting even if Ken retires before 65.

Answer DescriptionExplanation:

The statement that is correct about Ken’s plan is option D. A defined benefit pension plan (DBPP) is a type of employer-sponsored retirement plan that promises to pay a specified amount of income to the plan member upon retirement. The amount of income is based on a formula that considers factors such as years of service, salary, and age. Income received from a DBPP is eligible for pension income splitting even if Ken retires before 65, meaning that he can transfer up to 50% of his eligible pension income to his spouse or common-law partner for tax purposes. This can reduce the overall tax payable by the couple if they are in different tax brackets. Therefore, option D is correct about Ken’s plan. The other statements are not correct about Ken’s plan. Option A is false because contributions to the plan do result in a Pension Adjustment (PA) for Ken, which is an amount that reduces his RRSP contribution room for the following year. Option B is false because the amount Ken receives in retirement does not depend on the performance of the investments he has selected within the plan; rather, it depends on the formula that determines his pension benefit. Option C is false because the amount that Ken will receive at retirement is guaranteed by the plan sponsor, unless the plan sponsor becomes insolvent or terminates the plan.

References:

[Defined Benefit Pension Plans | GetSmarterAboutMoney.ca], [Pension Income Splitting | GetSmarterAboutMoney.ca], [Pension Adjustment (PA) | GetSmarterAboutMoney.ca]

A. retractable

Answer DescriptionExplanation:

Retractable preferred shares are those that give the holder the option to sell them back to the issuer at a predetermined price and date. This is the case for Evan, who can sell his shares back to Ingram at par value any time from now until September 1st two years from now. References: Canadian Investment Funds Course (CIFC) | IFSE Institute

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).

Answer DescriptionExplanation:

The statement that is correct about Maalik’s identification requirements is option A. According to Section 7 of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), registered firms and individuals must report any suspicious transactions or attempted transactions to FINTRAC, which is Canada’s financial intelligence unit that collects, analyzes, and discloses information related to money laundering and terrorist financing activities. A suspicious transaction or attempted transaction is one that there are reasonable grounds to suspect that it is related to a money laundering or terrorist financing offence. Therefore, if Maalik determines that there is anything suspicious about John’s transaction, he must report the matter to his dealer, who must report it to FINTRAC within 30 days of making the determination. The other statements are not correct about Maalik’s identification requirements. Option B is false because Maalik does not need to report John as a PEFP to his dealer; rather, he must take reasonable measures to determine whether John is a PEFP or a family member or close associate of a PEFP, and if so, he must obtain senior management approval before opening an account for John, take enhanced measures to verify John’s identity, and conduct enhanced ongoing monitoring of John’s account activity. Option C is false because Maalik does not need to collect personal information about John and report it to his dealer if John wants to make a large cash deposit; rather, he must verify John’s identity using an original, valid, and current document or information from a reliable source, keep a record of John’s name and address and the date and amount of the deposit, and report any large cash transactions of $10,000 or more in Canadian currency or its equivalent to FINTRAC within 15 days of receiving the cash. Option D is false because Maalik does not need to report the attempt to his dealer if John attempts to make a suspicious deposit; rather, he must report the attempt directly to FINTRAC within 30 days of detecting the suspicion, regardless of whether the transaction was completed or not.

References:

[FINTRAC - Home], [FINTRAC - Reporting], [FINTRAC - Guideline 2: Suspicious Transactions], [FINTRAC - Guideline 6A: Record Keeping and Client Identification for Financial Entities]

A. i and ii

Answer DescriptionExplanation:

A target date fund is a type of mutual fund that adjusts its asset allocation and risk level according to a predetermined future date, such as retirement or college education. A target date fund typically starts with a higher proportion of stocks and a lower proportion of bonds and cash, and gradually shifts to a more conservative mix as the target date approaches. This is called the fund’s glide path, which shows the asset mix through the life of the fund until the future date. Russell is permitted to include this information on his website, as it is factual and relevant to the fund’s characteristics and suitability. Russell is also permitted to include information about the expected decline in the fund’s risk level as the fund reaches its target date, as this is part of the fund’s objective and strategy. However, Russell is not permitted to include any information that implies or suggests that the target date fund offers a guaranteed return or a promised growth on the future date, as this would be misleading and inaccurate. Target date funds are not guaranteed investments, and their performance depends on the market conditions and the fund manager’s decisions. Russell must not make any false or exaggerated claims about the target date fund’s benefits or returns on his website.

References:

Canadian Investment Funds Course, Chapter 7: Know Your Product1

B. Commercial Paper

Answer DescriptionExplanation:

Commercial paper is a type of money market security that is issued by corporations and financial institutions to raise short-term funds. Commercial paper has a maturity of less than one year, typically between 30 and 90 days. Commercial paper is unsecured, meaning that it is not backed by any collateral or guarantee. Therefore, commercial paper has the highest degree of risk for the investor among the four types of money market securities listed, as it depends on the creditworthiness and liquidity of the issuer. If the issuer defaults or faces financial difficulties, the investor may lose part or all of their principal. Commercial paper also has a higher interest rate than other money market securities to compensate for the higher risk.

The other types of money market securities are:

Bankers’ acceptances: These are negotiable instruments that are issued by a bank on behalf of a client who needs to finance international trade transactions. Bankers’ acceptances have a maturity of less than one year, usually between 30 and 180 days. Bankers’ acceptances are secured by the bank’s guarantee and the underlying goods or services that are being traded. Therefore, bankers’ acceptances have a lower degree of risk for the investor than commercial paper, as they are backed by the bank’s creditworthiness and the value of the trade transaction. Treasury bills: These are short-term debt obligations that are issued by the federal government to finance its operations and programs. Treasury bills have a maturity of less than one year, usually between 3 and 12 months. Treasury bills are considered risk-free investments, as they are backed by the full faith and credit of the government. Therefore, treasury bills have the lowest degree of risk for the investor among the four types of money market securities listed, as they have virtually no default risk or liquidity risk. Treasury bills also have the lowest interest rate among the four types of money market securities, as they reflect the risk-free rate of return. Municipal short-term paper: These are short-term debt instruments that are issued by municipalities or other local governments to finance their capital projects or operating expenses. Municipal short-term paper has a maturity of less than one year, usually between 30 and 270 days. Municipal short-term paper is secured by the taxing power and revenue sources of the issuing municipality or government. Therefore, municipal short-term paper has a lower degree of risk for the investor than commercial paper, as it is backed by the ability and willingness of the issuer to levy taxes and collect revenues.

References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities,
Section 5.1: Money Market Securities, page 5-21
Money Market Definition - Investopedia2
Commercial Paper Definition - Investopedia3
Bankers’ Acceptance (BA) Definition - Investopedia4
Treasury Bill (T-Bill) Definition - Investopedia
Municipal Bond Definition - Investopedia

B. Polar Global Blue Chip Equity Fund - this global equity fund invests in large, established companies in mostly stable and mature foreign markets.

Answer DescriptionExplanation:

Loretta is looking for a well diversified equity fund that invests both within and outside Canada. She also wants a fund that invests in quality companies, which implies that she prefers lower risk and higher stability. A global equity fund would meet her criteria, as it can invest in any country, including Canada, and diversify across different regions and markets. A global equity fund that focuses on large, established companies, also known as blue chip stocks, would also suit her preference for quality and stability, as these companies tend to have strong financial performance, competitive advantages, and consistent dividends. Therefore, the Polar Global Blue Chip Equity Fund would be the best choice for Loretta among the given options.

References: Canadian Investment Funds Course, Unit 6, Section 6.2

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

Answer DescriptionExplanation:

Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security. This strategy can reduce the overall impact of price volatility and lower the average cost per share. By buying regularly in up and down markets, investors buy more shares at lower prices and fewer shares at higher prices. Dollar-cost averaging aims to prevent a poorly timed lump sum investment at a potentially higher price.

References:

What Is Dollar-Cost Averaging? - Investopedia

D. slopes upward to the right

Answer DescriptionExplanation:

A normal yield curve is a graphical representation of the relationship between the interest rates and the maturities of different fixed income securities. It slopes upward to the right, meaning that longer-term bonds have higher yields than shorter-term bonds. This reflects the fact that investors demand higher compensation for lending money for longer periods of time and taking on more risk. A normal yield curve indicates that investors expect the economy to grow steadily and inflation to remain stable.

References:

Canadian Investment Funds Course (CIFC) | IFSE Institute, Unit 4, Lesson 3