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| Section | Weight | Objectives |
|---|---|---|
| Topic 1: Managed Products | - Mutual Funds
| |
| Topic 2: Client Relationships & Accounts | - Retail client advisory
| |
| Topic 3: Investment Analysis | 18% | - Risk and return measurement
|
| Topic 4: Canadian Taxation | 6% | - Tax treatment of investments
|
| Topic 5: Portfolio Analysis | 18% | - Portfolio construction
|
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NEW QUESTION # 122
What type of risk were mortgage-backed securities designed to address?
Answer: A
Explanation:
Mortgage-Backed Securities (MBS)are designed to addressprepayment risk, which arises when borrowers pay off their mortgages earlier than expected. Prepayments reduce the interest income investors receive and can affect the expected return on the security.
* Why Prepayment Risk is Addressed:
* Prepayment often occurs when interest rates decline, as borrowers refinance their mortgages. This leaves MBS investors reinvesting at lower yields, which impacts returns.
* Structuring MBS helps mitigate prepayment risk through mechanisms like tranches in Collateralized Mortgage Obligations (CMOs).
* Explanation of Options:
* A. Liquidity: Incorrect. MBS provides liquidity to lenders but is not designed to address liquidity risk directly.
* B. Interest Rate: Incorrect. MBS investors are still exposed to interest rate risk as rates impact prepayment behavior.
* C. Rollover: Incorrect. Rollover risk applies to short-term debt securities, not MBS.
* D. Prepayment: Correct. MBS structures are specifically designed to mitigate the impact of prepayments on investors.
References:
* CSC Volume 2, Chapter 23: Risks of structured products, particularly prepayment risks in MBS.
NEW QUESTION # 123
Over the previous three calendar years, fund LMO had five drawdowns as follows:
What was the maximum drawdown during this time period?
Answer: D
NEW QUESTION # 124
A portfolio manager at an investment firm is analyzing the behavior of stocks in various market conditions.
They believe markets are efficient and that all public and non-public and non-public available information is fully reflected in current process. How should the construct their investment portfolio?
Answer: D
Explanation:
When an investor or portfolio manager adheres to the belief in market efficiency-specifically the strong form of theEfficient Market Hypothesis (EMH)-it implies that all information (public and non-public) is fully reflected in security prices. This belief diminishes the value of active investment strategies, such as fundamental or technical analysis, as these approaches presume the possibility of identifying undervalued or overvalued securities.
As such, the logical approach in this scenario would be to adopt apassive investment strategy. This includes constructing a portfolio ofexchange-traded funds (ETFs)or index funds that replicate the performance of a broad market index, such as the S&P/TSX Composite Index. A passive approach aligns with the principle of market efficiency, as it avoids attempts to outperform the market, which are considered futile under the EMH.
References:
* Volume 2, Chapter 13: Fundamental and Technical Analysis, Efficient Market Hypothesis,Canadian Securities Course.
NEW QUESTION # 125
What is an example of a KYC requirement?
Answer: A
Explanation:
Know Your Client requirements require the advisor and firm to collect and maintain sufficient information about the client to assess suitability. This includes personal circumstances, financial circumstances, investment knowledge, risk tolerance, risk capacity, time horizon, investment objectives, liquidity needs, and other relevant constraints. Option A is incorrect because each account may have different objectives, ownership, risk profile, or restrictions, so information cannot simply be assumed across accounts without proper review. Option B is incorrect because joint accounts require relevant information for the account holders. Option C is wrong because KYC obligations still matter even when the client initiates a transaction. The advisor must understand the client well enough to identify suitability concerns. Therefore, personal circumstances are a core KYC requirement.
NEW QUESTION # 126
What event would trigger an amendment of the account application while monitoring a portfolio?
Answer: C
NEW QUESTION # 127
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