Segregated Funds: HLLQP Study
Guide Exam and All Actual Answers.
Simple Interest - Answer Interest Earned is paid out at the end of the term
Compound Interest - Answer Interest earned is re-invested at the end of the term (Interest
on Interest)
Nominal rate of Return - Answer stated or advertised rate
Real rate of return - Answer nominal rate of return minus rate of inflation
Asset Classes - Answer - Stocks (equities)
- bonds (Fixed Income)
- Cash (Money market instruments)
- real Estate and Commodities (sometimes)
Diversification - Answer - Objective is lower investment risk.
- Manage risk through combining asset classes and investments within those classes vs.
investing in one security
- Foreign and domestic investments
Future Value - Answer If i invest ____ today @ ___ interest, how much is it worth in the
future
Economic Risk - Answer Investment impacted by macroeconomic factors
Equity Risk - Answer - Risk of stock/share price falling causing loss
- Related to supply and demand
Inflation Risk - Answer - aka Purchasing Power Risk
- Increase in cost of living measured by the CPI
- Compounds year over year
Inflation Risk Impacts: - Answer - Savings Accounts
, - GIC's
- Bonds
- Money Market Funds
- Annuities
Interest Rate Risk - Answer - Locking-In today's rate in an increasing rate environment
Interest Rate Impacts - Answer - GICs
- Bonds
- Annuities
Market Risk - Answer - total financial market will decline due to uncontrollable events
- natural disaster, terrorist attack, etc.
Liquidity Risk impacts: - Answer - Locked-In Investments
- GICs
- Annuities
- Real Estate
- Public stocks no one wants
Credit Risk - Answer - Risk borrower will not repay loan
- relevant to bond issuers
Basic Segregated Fund Features - Answer - Exclusive to Life insurance industry
- Only licensed life insurance agents can sell segregated funds
- equivalent to mutual fund
Legal Term for Segregated Funds - Answer Individual Variable Insurance Contract (IVIC)
Unique Advantages to SF - Answer - Maturity and death benefit guarantees
- Ability to reset guarantee in some contracts
- Possible creditor protection
Right to designate a beneficiary and a by-pass probate
- Tax benefit when capital losses are incurred
Guide Exam and All Actual Answers.
Simple Interest - Answer Interest Earned is paid out at the end of the term
Compound Interest - Answer Interest earned is re-invested at the end of the term (Interest
on Interest)
Nominal rate of Return - Answer stated or advertised rate
Real rate of return - Answer nominal rate of return minus rate of inflation
Asset Classes - Answer - Stocks (equities)
- bonds (Fixed Income)
- Cash (Money market instruments)
- real Estate and Commodities (sometimes)
Diversification - Answer - Objective is lower investment risk.
- Manage risk through combining asset classes and investments within those classes vs.
investing in one security
- Foreign and domestic investments
Future Value - Answer If i invest ____ today @ ___ interest, how much is it worth in the
future
Economic Risk - Answer Investment impacted by macroeconomic factors
Equity Risk - Answer - Risk of stock/share price falling causing loss
- Related to supply and demand
Inflation Risk - Answer - aka Purchasing Power Risk
- Increase in cost of living measured by the CPI
- Compounds year over year
Inflation Risk Impacts: - Answer - Savings Accounts
, - GIC's
- Bonds
- Money Market Funds
- Annuities
Interest Rate Risk - Answer - Locking-In today's rate in an increasing rate environment
Interest Rate Impacts - Answer - GICs
- Bonds
- Annuities
Market Risk - Answer - total financial market will decline due to uncontrollable events
- natural disaster, terrorist attack, etc.
Liquidity Risk impacts: - Answer - Locked-In Investments
- GICs
- Annuities
- Real Estate
- Public stocks no one wants
Credit Risk - Answer - Risk borrower will not repay loan
- relevant to bond issuers
Basic Segregated Fund Features - Answer - Exclusive to Life insurance industry
- Only licensed life insurance agents can sell segregated funds
- equivalent to mutual fund
Legal Term for Segregated Funds - Answer Individual Variable Insurance Contract (IVIC)
Unique Advantages to SF - Answer - Maturity and death benefit guarantees
- Ability to reset guarantee in some contracts
- Possible creditor protection
Right to designate a beneficiary and a by-pass probate
- Tax benefit when capital losses are incurred
