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NEW QUESTION # 137
Max, a financial advisor, has invited his client, Natalia, for an annual review of her retirement plan. However, Natalia does not want to come for a meeting, as she is comfortable with her current portfolio asset allocation and does not think that a review is required at this point. What bias is Natalia demonstrating?
Answer: D
Explanation:
The status quo bias is the tendency for investors to resist change and prefer their current situation, even when a review or adjustment may be beneficial. Natalia refuses to attend a portfolio review because she is comfortable with her current allocation and does not see the need for change.
Endowment bias relates to overvaluing owned assets.
Overconfidence is excessive belief in one's own ability.
Availability bias is reliance on easily recalled information.
Thus, Natalia is demonstrating status quo bias.
NEW QUESTION # 138
What criteria does the independent review committee use to determine if a potential conflict of interest, such as interfund trading, should be approved?
Answer: D
Explanation:
The independent review committee approves actions involving conflicts of interest only if they achieve a fair and reasonable result for the fund. The feedback from the document states:
"The Independent Review Committee will only approve actions where a conflict of interest arises if certain requirements are met, including, most importantly, the action achieves a fair and reasonable result for the fund." Reference: Chapter 10 - The Modern Mutual FundLearning Domain: The Modern Mutual Fund
NEW QUESTION # 139
An increase in which factor is a result of a deflationary environment?
Answer: B
Explanation:
In a deflationary environment, prices of goods and services fall. This leads to:
Lower corporate profits (as companies sell at lower prices)
Lower interest rates (to stimulate borrowing)
But personal savings increase because consumers delay purchases expecting lower future prices.
Therefore, the correct answer is Personal savings.
NEW QUESTION # 140
Exchange traded funds (ETFs) that track an index and index mutual funds have many similarities. However, what is a major difference between these two products?
Answer: A
Explanation:
ETFs can be purchased continuously throughout the trading day while index funds can only be bought or sold at the end of the day. This is because ETFs are traded on a stock exchange like stocks, while index funds are traded directly with the fund company like mutual funds. This difference gives ETFs more liquidity and flexibility than index funds, as investors can buy and sell ETFs at any time during market hours at the prevailing market price. Index funds, on the other hand, are priced only once a day at the end of the day based on the net asset value per unit (NAVPU) of the fund. Both ETFs and index funds are prone to tracking errors (A), which are the differences between the performance of the fund and the performance of the underlying index. Tracking errors can be caused by various factors, such as fees, expenses, dividends, rebalancing, and market conditions. The market price of ETFs does not always match the underlying basket of securities ©, as it is determined by supply and demand in the market. There can be a discrepancy between the market price and the NAVPU of an ETF, which is called the premium or discount. Index funds, on the other hand, are priced based on the NAVPU of the fund, which reflects the value of the underlying securities. Both ETFs and index funds have management fees (D), as they are both types of mutual funds that incur costs for managing and operating the fund. However, ETFs usually have lower management fees than index funds, as they are more passive and have lower turnover and distribution costs.
NEW QUESTION # 141
Justin and Yvonne both open a Registered Education Savings Plan (RESP) for their daughter Grace. They plan to regularly contribute $1,000 per year until Grace reaches the age of 17.
Which of the following statements relating to RESP is CORRECT?
Answer: A
Explanation:
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.
1: Canadian Investment Funds Course, Unit 9, Section 9.1
NEW QUESTION # 142
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