CSI Investment Funds in Canada IFC Dumps in PDF

Free CSI IFC Real Questions (page: 3)

What bias results in investors valuing an asset that they own over an asset that another individual owns?

  1. Representativeness
  2. Endowment
  3. Risk aversion
  4. Status Quo

Answer(s): B

Explanation:

Endowment bias leads investors to overvalue assets they own compared to similar assets they do not own. The feedback from the document states:

"People who are subject to endowment bias place more value on an asset they hold property rights to than on an asset they do not hold property rights to."


Reference:

Chapter 5 ­ Behavioural FinanceLearning Domain: The Know Your Client Communication Process



What response would a loss-averse investor be most likely to choose in selecting a preferred investment return scenario?

  1. An assured loss of $750
  2. A 75% chance of losing $1,000, and a 25% chance of losing nothing
  3. A 25% chance of gaining $2,000, and a 75% chance of losing nothing
  4. A 5% chance of gaining $1,500, and a 95% chance of losing $800

Answer(s): C

Explanation:

Loss-averse investors prioritize minimizing potential losses over maximizing gains. The option with a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest loss potential, making it the preferred choice. The feedback from the document states:

"The loss-averse investor will choose a lower potential of loss over a more rational choice. In this example, a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest possible loss potential, and will typically be the statement selected by the loss-averse investor."


Reference:

Chapter 5 ­ Behavioural FinanceLearning Domain: The Know Your Client Communication Process



What bias would influence an investor's decision to continue to hold an unprofitable investment despite little likelihood of an improvement in the investment's value?

  1. Representativeness
  2. Loss aversion
  3. Status quo
  4. Cognitive dissonance

Answer(s): B

Explanation:

Loss aversion bias causes investors to hold onto unprofitable investments due to a stronger desire to avoid losses than to seek gains. The feedback from the document states:

"Loss aversion bias states that people generally feel a stronger impulse to avoid losses than to acquire gains. Loss aversion can prevent people from unloading unprofitable investments, even when they see little to no prospect of a turnaround."


Reference:

Chapter 5 ­ Behavioural FinanceLearning Domain: The Know Your Client Communication Process



Joanne's earned income last year was $45,000 and her pension adjustment was $2,500. She has $2,000 in carry-forward registered retirement savings plan (RRSP) room for the current taxation year.
What is Joanne's maximum tax-deductible RRSP contribution amount for the current year?

  1. $12,600
  2. $5,600
  3. $7,600
  4. $8,100

Answer(s): C

Explanation:

The maximum tax-deductible RRSP contribution is calculated as 18% of the previous year's earned income, minus the pension adjustment, plus any carry-forward contribution room. In this case:

(18% × $45,000) = $8,100

$8,100 - $2,500 (pension adjustment) + $2,000 (carry-forward) = $7,600.

The feedback from the document confirms:

"Joanne's tax-deductible RRSP contribution room would be calculated as (18% × $45,000) - $2,500 + $2,000 = $7,600."


Reference:

Chapter 6 ­ Tax and Retirement PlanningLearning Domain: The Know Your Client Communication Process



Rebecca, an investor in a 40% marginal tax bracket, receives $1,200 in Canadian dividends eligible for the dividend tax credit.
What is the dividend tax credit that applies to this income?

  1. $248.73
  2. $662.40
  3. $1,200
  4. $480

Answer(s): A

Explanation:

The dividend tax credit for Canadian dividends is calculated based on the grossed-up dividend amount. For eligible dividends, the gross-up is 38%. The taxable amount for $1,200 in dividends is $1,200 × 1.38 = $1,656. The dividend tax credit is 15.02% of the grossed-up amount: $1,656 × 15.02% = $248.73. The feedback from the document confirms:

"The taxable amount of the dividend is the income received plus a 38% gross-up amount. In this example, $1,200 + ($1,200 × 38%) = $1,656. The dividend tax credit is 15.02% of the grossed-up amount, in this example, $1,656 × 15.02% = $248.73."


Reference:

Chapter 6 ­ Tax and Retirement PlanningLearning Domain: The Know Your Client Communication Process



Which form of investment income is taxed at an investor's marginal tax rate?

  1. Capital gains
  2. Capital losses
  3. Canadian dividend income
  4. Foreign dividend income

Answer(s): D

Explanation:

Foreign dividend income is taxed at the investor's marginal tax rate without the benefit of a dividend tax credit, unlike Canadian dividend income, which qualifies for a tax credit. The feedback from the document states:

"Foreign dividend income is not eligible for any dividend tax credit, and is taxed at an investor's marginal tax rate."


Reference:

Chapter 6 ­ Tax and Retirement PlanningLearning Domain: The Know Your Client Communication Process



What type of benefit plan has a final benefit that is dependent on the investment returns within the plan?

  1. Career average plan
  2. Defined contribution plan
  3. Final average plan
  4. Flat benefit plan

Answer(s): B

Explanation:

In a defined contribution plan, the retirement benefit depends on the performance of the investments within the plan, also known as a money-purchase plan. The feedback from the document states:

"In a defined contribution plan, also known as a money-purchase plan, the eventual benefits at retirement will be based on how the contributions were invested within the plan."


Reference:

Chapter 6 ­ Tax and Retirement PlanningLearning Domain: The Know Your Client Communication Process



What is the step in the financial planning process that includes a discussion of a client's household budget?

  1. Interview the client
  2. Gather data and identify goals and objectives
  3. Develop a written financial plan
  4. Identify financial situation and constraints

Answer(s): D

Explanation:

Discussing a client's household budget is part of identifying their financial situation and constraints, a key step in the financial planning process. The feedback from the document states:

"The household budget is part of the discussions related to identifying financial problems and constraints."


Reference:

Chapter 4 ­ Getting to know the clientLearning Domain: The Know Your Client Communication Process



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