If stock markets are inefficient

It will be easier for investors to find stocks that are undervalued

The best assessment of stock performance is to compare the returns to

A comparable stock index during the same period

Employment Insurance (EI) does not provide adequate coverage for a long-term disability because

It provides benefits for only a 15-week period

Which of the following statements is true about defined benefit pension plans (DBPPs)?

A DBPP is a retirement plan on automatic pilot

Regarding load and no-load mutual funds

No-load funds have outperformed load funds on average

When calculating the amount of life insurance premiums, underwriters of life insurance would not be concerned with

The length of time you plan to keep the coverage

In Canada, the closest thing to a completely risk-free investment is

3 month Government of Canada Treasury Bill

Describe 4 advantages for group health insurance plans

Enable better staff retention because of the security employees feel, Encourage loyalty and trust among employees, Be in a position to help if tragedy befalls employee; there is great need, Provide owners with opportunity to write off premiums as business expenses

Which of the following is correct?

The par value of a bond is its face value, Par value x the coupon rate equals the interest paid to investors annually, The par value of a bond will be paid to the bondholder at maturity

Which of the following is a tax-free benefit?

Guaranteed Income Supplement (GIS)

The beneficiary of a life insurance policy is

The one who receives the settlement option

A family of mutual funds is

Anumber of funds with different objectives operated by 1 investment company

If you have been in an employer-sponsored pension plan for 3 years and you leave your employer well before retirement

Transfer the plan to your new employer if the plan the permits the transfer

Which of the following is true of tenant's insurance?

It covers your own property only, not your landlord's property

Which one of the following is a true statement with respect to investing in bonds?

Including bonds in a stock portfolio lowers a portfolio's overall risk

If stock markets are truly efficient, it implies that

It will not be easy to find undervalued stocks

In order to have an umbrella personal liability policy, you must have

both existing auto and homeowner's insurance

Tax-free withdrawals from an RRSP for the HBP or LLP

Must be paid back on schedule or added to your taxable income

Technical analysts look for stock price patterns which

Indicate a possible price trend

Underwriters for an insurance company

calculate the risks of specific insurance requests from the public

Individual health insurance plans

Are purchased directly through agents

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FINC1100 Ch 8-14

77 termsStudBud Administration58 plays

Review class. Preparation for final test/assessment in Financial Planning.

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Questions 77

Answers

1
A bond that is trading at a price below its par value is said to be a discount bond (i.e. 97%)
False
True
2
Three advantages of investing in mutual funds are diversification, marketability and economies of scale
True
False
3
If stock markets are inefficient
Stock selections by investors will not consistently beat the market
Stock prices fully reflect information that is available to investors
Fundamental value analysis will not be effective
It will be easier for investors to find stocks that are undervalued
4
The best assessment of stock performance is to compare the returns to
The average gains or losses you had in the last five years
The average returns of GICs
The prime rate set by the Bank of Canada
A comparable stock index during the same period
5
One of the most commonly used measures of inflation is the
Inflation factor
Fiscal policy
Consumer Price Index (CPI)
Gross Domestic Product (GDP)
6
Employment Insurance (EI) does not provide adequate coverage for a long-term disability because
It takes a long time to process the application
It provides only 20 percent of regular income for the insured
It is only payable in extreme cases of disability
It provides benefits for only a 15-week period
7
Which of the following statements is true about defined benefit pension plans (DBPPs)?
In a DBPP investment decisions are made jointly by employee and employer
A DBPP is a retirement plan on automatic pilot
A DBPP is ideally suited for individuals who are good savers
Any shortfall in a DBPP must be covered by both employer and employee
8
Regarding load and no-load mutual funds
They tend to perform about the same when the commission is included
No-load funds have outperformed load funds on average
Load funds have outperformed no-load funds on average
Load funds require a broker, whereas no-load funds are purchased directly
9
Stock was purchased at $23; sold in 2 years for $25.50; Received $0.70 dividend per year; What was the annual return?
8.5 %
10.9 %
7 %
17 %
10
When calculating the amount of life insurance premiums, underwriters of life insurance would not be concerned with
The length of time you plan to keep the coverage
Your health habits
The amount of coverage you desire
Your age when you take out the policy
11
In Canada, the closest thing to a completely risk-free investment is
1 year Government of Canada Bond
9 month Government of Canada Treasury Bill
6 month Government of Canada Treasury Bill
3 month Government of Canada Treasury Bill
12
Describe 4 advantages for group health insurance plans
Enable better staff retention because of the security employees feel
Encourage loyalty and trust among employees
Be in a position to help if tragedy befalls employee; there is great need
Provide owners with opportunity to write off premiums as business expenses
13
Which of the following is correct?
The par value of a bond is its market value in the secondary market
The par value of a bond is its face value
Par value x the coupon rate equals the interest paid to investors annually
The par value of a bond will be paid to the bondholder at maturity
14
Whole life insurance has a premium that
Declines
Is variable
Is fixed
Increases
15
Which of the following is a tax-free benefit?
Guaranteed Income Supplement (GIS)
Year's Basic Exemption (YBE or $3500)
Canada Pension Plan (CPP)
Old Age Security (OAS)
16
The beneficiary of a life insurance policy is
The one who pays the premiums
The owner of a policy
The life insured
The one who receives the settlement option
17
If Jim's stock return was -1 percent and the TSX stock index had a 3 percent return, the excess return of Jim's stock is
-4 %
-2 %
4 %
2 %
18
A family of mutual funds is
Quite rare in the mutual fund industry
Anumber of funds with different objectives operated by 1 investment company
Where all of the funds have the same objective such as bond funds
Where a number of competing investment companies pool their resources
19
Calculation for the 2020 RRSP contribution limit takes into consideration which of the following pieces of information?
2020 income
2020 pension adjustment (PA)
2019 pension adjustment (PA)
2021 income
20
If you have been in an employer-sponsored pension plan for 3 years and you leave your employer well before retirement
You can transfer the funds to a RRIF
Withdraw the funds tax-free within 30 days of leaving, if it is under $30K
You are not entitled to the employer's contribution to your plan
Transfer the plan to your new employer if the plan the permits the transfer
21
If a company's P/E is 20 and its industry's mean P/E is 15, the company is likely considered to be
Poorly managed
Risky
Undervalued
Overvalued
22
The type of insurance coverage that pays you with a monthly income if you are unable to work due to injury or illness
Critical illness insurance
Long-term care insurance
Disability insurance
Health insurance
23
Pending rule changes from the government you must be 67 years old (instead of 65) before you can begin collecting OAS
False
True
24
If an investor was concerned about the tax efficiency of their mutual fund, which type of mutual funds should they buy?
Front-end load mutual funds
Open-end mutual funds
Close-end mutual funds
Back-end load mutual funds
25
If you paid $9600 for a bond with a par value of $10000 and a 5% coupon rate, the semi-annual payment would be $250
False
True
26
Which of the following is true of tenant's insurance?
It covers your own property only, not your landlord's property
Only need it if your possessions are of considerable value
It will not cover you if a visitor sues you for an injury in your apartment
Most people who need it have renter's insurance because premiums are low
27
How much reimbursement rec'd for cash value coverage? Camera cost $300 8 yrs ago; 10 yrs life expect; $100 to replace
200
300
60
100
28
Which is the best reason for investing in mutual funds?
Sector investment goals
Management expense ratios
Portfolio managers' performance
Diversification
29
Which one of the following is a true statement with respect to investing in bonds?
Including bonds in a stock portfolio lowers a portfolio's overall risk
Investing in bonds reduces exposure to interest rate risk
Investors more concerned about periodic income should not invest in bonds
The market value of bonds increases when interest rates rise
30
Investing prescribed percentages in stocks, bonds, and preferred shares is a type of asset allocation
False
True
31
To save $10000 for a down payment on a house in 5 years. You earn 8 % compounded monthly. How much do you save monthly?
$142.00
$136.00
$167.00
$131.00
32
Refusing to go bungee jumping is
transferring risk
accepting risk
sharing risk
avoiding risk
33
Critical illness insurance benefits are paid out to disabled employees on a monthly basis
True
False
34
A bond that is trading at a price above its par value is said to be a discount bond (i.e. 103%)
True
False
35
The average duration of a disability lasting more than 3 months is longest for which age
45 years old
55 years old
35 years old
25 years old
36
If stock markets are truly efficient, it implies that
Stock purchase and sell orders can be completed within a number of seconds
It will not be easy to find undervalued stocks
Technical analysis should be more effective than fundamental analysis
Professional money managers should outperform individual investors
37
In order to have an umbrella personal liability policy, you must have
prove your insurability
an existing homeowner's insurance
an existing auto insurance
both existing auto and homeowner's insurance
38
The Toronto Stock Exchange (TSX) is the only Canadian stock exchange
True
False
39
Bonds usually pay interest
Quarterly
Monthly
Annually
Semi-Annually
40
Tax-free withdrawals from an RRSP for the HBP or LLP
Represent lost contribution room in the future
Can be paid back to a spousal account instead of the account withdrawn from
Do not affect the compounding of your investments inside the RRSP
Must be paid back on schedule or added to your taxable income
41
Because exchange-traded funds (ETFs) are passively managed, they are a good choice if looking for tax efficiency
False
True
42
Technical analysts look for stock price patterns which
Indicate stocks with rapidly changing P/Es
Indicate value trends
Demonstrate profit trends
Indicate a possible price trend
43
Underwriters for an insurance company
calculate the risks of specific insurance requests from the public
market insurance policies
invest the premiums of policies to make their company a profit
recommend insurance policies that fit customers' needs
44
Funds that attempt to mirror the movements of existing broad market indicators are called
Index funds
Stock funds
Class funds
ETFs
45
A rider is an option that allows you to customize an insurance policy, such as by adding term insurance for a child
True
False
46
The Canada Health Act ensures that all provinces offer the same medical services
True
False
47
Low interest rates can increase demand for stocks and therefore have a direct impact on stock prices
False
True
48
Mutual fund gains can be in the form of dividends, interest and/or capital gains
True
False
49
Individual health insurance plans
Are purchased directly through agents
Duplicate coverage offered by group plans
Expire when you resign your employment
Have less expensive premiums
50
How do you Manage Risk?
Avoid, Reduce, Eliminate, Ignore
Buy $5M in Spousal Insurance
Deal, Defer, Delegate, Deny
Avoid, Reduce, Accept, Share
51
What percentage of pre-retiree Canadians think they are behind on their retirement savings?
44 %
66 %
25 %
85 %
52
Employees of financial institutions who make investment decisions are referred to as
Day traders
Institutional investors
Individual investors
Portfolio managers
53
A convertible bond allows the investor to exchange that bond for another issue of bonds within the convertible period
True
False
54
A stock with a low P/E ratio compared with its peers means it is a good value using fundamental analysis
True
False
55
Mike bought a strip bond for his RRSP. It cost $3777 and was a 3-year $5000 face bond. What is the annualized return?
9.80 %
9.36 %
8.15 %
7.80 %
56
Taking a loan for $5000 to invest in a conservative portfolio is MORE risky than saving $5000 to invest conservatively
False
True
57
You own 500 units of a fund that now has a NAV of $12.30. What is your total investment worth?
$61500
$6150, plus the load fee
$6150, minus the load fee
$6150
58
Buying more of a stock that has just plummeted in value is an example of
Purchasing stocks on sale
Dollar cost averaging
Taking excessive risk to recover from a losing position
Averaging your cost base down
59
Stocks that provide investors with periodic income in the form of large dividends are called
Large cap stocks
Value stocks
Growth stocks
Income stocks
60
A bond's market price is generally expressed as a percentage of its par value
True
False
61
Bonds are certificates representing partial ownership of a firm
True
False
62
The units of a segregated fund differ from the units of a mutual fund in that
Each unit is insured from the date of purchase
The units of the segregated fund are owned by the unit holder
A segregated fund does not report a NAV
The units of the segregated fund are owned by the insurance company
63
Select best insurance option if RRSP contributions are maxed, have positive cash flow & want beneficiaries to prosper
Universal Life with YRT
Whole life
Universal life with level term insurance
Term to 100
64
A corporate bond trading at below par will have
A higher yield to maturity than the coupon rate
Lower risk than one trading at par
Higher risk than one trading at par
A lower yield to maturity than the coupon rate
65
Old Age Security can be deferred for five years, which would increase one's benefit by an additional 36 %
True
False
66
Which of the following statements is true with respect to the tax treatment of deferred profit-sharing plans (DPSPs)?
The growth of plan contributions is taxable
DPSP contributions are a non-taxable benefit for employees
Employer contributions are not tax deductible
Employee withdrawals from a DPSP are tax-free
67
The bond par value or face value is the amount the investor will be paid when the bond matures
False
True
68
What are the 4 BIG coverages for Critical Illness insurance?
Heart Attack, Stroke, Cancer, COVID-19
Heart Attack, Stroke, Measles, COVID-19
Heart Attack, Stroke, Cancer, Coronary bypass
Sore back, Stroke, Measles, Coronary bypass
69
Bond prices are inversely correlated with interest rates: when rates go up, bond prices fall and vice-versa
True
False
70
Which of the following mutual fund categories combines different asset types to create a portfolio?
Equity mutual fund
Money market mutual fund
Bond mutual fund
Balanced mutual fund
71
Which one of the following is not a type of homeowner's insurance policy?
basic coverage
broad coverage
all perils coverage
comprehensive coverage
72
Which of the following is true about mutual fund expenses (MER's)?
The funds with higher MERs pay the sales people the most
International equity funds often have higher MERs
The MERS of all kinds of funds are roughly the same
Management fees include all sales and administration expenses
73
TSX Index had a return of 12% and Apple Inc. had a return of 2% over the same period. Was NASDAQ:AAPL a good choice?
Your analysis of Apple was poor
Comparing returns with an Index is irrelevant
Apple is always a good buy, but the timeframe was too short to compare
The TSX Index is not a relevant comparison for an American company
74
List 4 ways to reduce homeowner's insurance premiums; categorize risk via sharing, reducing, avoiding or accepting
Do not buy a home (avoiding)
Don't make small claims (accepting)
Improve protection for your home with better locks (reducing)
Increase deductible (sharing)
75
A hazard may be defined as a peril or risk that you face
False
True
76
Which of the following is true regarding pension plans?
Once you are vested you can transfer the assets to your RRSP if you leave
Defined-benefit plans are advantageous, but not defined-contribution plans
Take advantage since the employer must contribute at least half the funding
A defined contribution pension plan is the same as an RRSP
77
A pooled investment fund is ideal for individuals with significant financial resources to build a diversified portfolio
False
True

FINC1100 Ch 8-14 Flashcards | StudBud