Segregated HLLQP - SFA 02 FC -
Funds Questions and All Correct
Answers 2026 Updated.
Describe the investment quality of a high-yield bond - Answer very low quality.
Analogy: Investing in a high-yield bond(junk bond) is a lot like betting on a longshot at the horse
races. Your horse is unlikely to win, and you will most likely lose all of your money. However, if
your horse somehow wins, you stand to make a huge profit. The same logic holds with junk
bonds. An investor may take a chance on such a bond if he believes that the issuer's fortunes
will turn around and the bond will fulfill its financial obligations (i.e., pay interest and pay the
face value back at maturity)
What does "switching" mean with reference to segregated funds? - Answer Switching refers
to taking money from one fund type and using it to buy another fund with the same insurer.
Most funds will allow the investor to make a certain number of switches without incurring a
specific switch fee. With that being said, if the client switches from a no-load fun to one that
charges a front-end load, a fee would then apply.
What is a balanced growth fund? - Answer A balanced fund that will have a greater
proportion invested in equities.
Contrasted with a balanced income fund, which is a balanced fund that will have a greater
proportion invested in fixed-income products.
To what extent is an insurer concerned about he client's health when purchasing a segregated
fund that offers death benefit guarantees? - Answer When insurers make maturity and death
guarantees, they are doing so based on their confidence in the way fund will be managed.
Essentially, they are saying, "We are very confident that over the long term, this fund will have a
positive return."The assumption is that 10 years (or the life-insured's lifespan) should be
sufficient time for the fund to make up any short-term losses it may realize.
What is the safest type of segregated fund? - Answer A money market fund.
The rules governing money market funds specify that 95% of the net assets must be invested in
cash or cash equivalents such as Treasury bills, short-term Government of Canada bonds, and
similar financial instruments. This is the lowest-risk fund type, and as a result will have a low
expected return.
, If interest rates increase, how would that affect the market value of existing bonds? - Answer
It would put downward pressure on the market price
How is the market capitalization of a stock calculated? - Answer Market Capitalization =
Number of Shares Outstanding x Share Price
For example, as of March 28, 2017, Microsoft had a market capitalization of approximately
$504.53 Billion
If a segregated fund is held outside of a registered plan (i.e., an RRSP) it is very important to
keep track of the investor's ACB (adjusted cost base). How should the ACB be adjusted if an
allocation is made? - Answer It should be adjusted upwards by the amount of the allocation.
What is the only type of segregated fund that would be suitable for use as an emergency fund? -
Answer A money market fund.
The rules governing money market funds specify 95% of the net assets must be invested in cash
or cash equivalents such as treasury bills, short-term Government of Canada bonds, and similar
financial financial instruments. This is the lowest-risk fund type, and as as a result will have a
low expected return.
Other fund types involve more risk, and would not be appropriate as a short-term investment.
The MER (management expense ratio) for an actively managed fund is higher than it would be
for one that is passively managed. What is passively managed fund? - Answer A passively
managed fund is one that is simply trying to mimic the return of the overall market, such as an
index fund.
An actively managed fund is one that is attempting to outperform the market.
If a segregated fund is held within a registered plan (i.e., an RRSP), how is investment income
from the fund treated from a tax perspective? - Answer Earnings within an RRSP are
sheltered from taxation. In other words, they are not taxed when they are earned. Instead, the
earnings can grow tax-sheltered until withdrawal.
Upon withdrawal from an RRSP, the entire amount is taxed just like regular employment income
(i.e., it is taxed at the investor's full marginal tax rate).
For this reason, there are no tax implications when a segregated fund pays a
distribution/allocation into registered account.
Funds Questions and All Correct
Answers 2026 Updated.
Describe the investment quality of a high-yield bond - Answer very low quality.
Analogy: Investing in a high-yield bond(junk bond) is a lot like betting on a longshot at the horse
races. Your horse is unlikely to win, and you will most likely lose all of your money. However, if
your horse somehow wins, you stand to make a huge profit. The same logic holds with junk
bonds. An investor may take a chance on such a bond if he believes that the issuer's fortunes
will turn around and the bond will fulfill its financial obligations (i.e., pay interest and pay the
face value back at maturity)
What does "switching" mean with reference to segregated funds? - Answer Switching refers
to taking money from one fund type and using it to buy another fund with the same insurer.
Most funds will allow the investor to make a certain number of switches without incurring a
specific switch fee. With that being said, if the client switches from a no-load fun to one that
charges a front-end load, a fee would then apply.
What is a balanced growth fund? - Answer A balanced fund that will have a greater
proportion invested in equities.
Contrasted with a balanced income fund, which is a balanced fund that will have a greater
proportion invested in fixed-income products.
To what extent is an insurer concerned about he client's health when purchasing a segregated
fund that offers death benefit guarantees? - Answer When insurers make maturity and death
guarantees, they are doing so based on their confidence in the way fund will be managed.
Essentially, they are saying, "We are very confident that over the long term, this fund will have a
positive return."The assumption is that 10 years (or the life-insured's lifespan) should be
sufficient time for the fund to make up any short-term losses it may realize.
What is the safest type of segregated fund? - Answer A money market fund.
The rules governing money market funds specify that 95% of the net assets must be invested in
cash or cash equivalents such as Treasury bills, short-term Government of Canada bonds, and
similar financial instruments. This is the lowest-risk fund type, and as a result will have a low
expected return.
, If interest rates increase, how would that affect the market value of existing bonds? - Answer
It would put downward pressure on the market price
How is the market capitalization of a stock calculated? - Answer Market Capitalization =
Number of Shares Outstanding x Share Price
For example, as of March 28, 2017, Microsoft had a market capitalization of approximately
$504.53 Billion
If a segregated fund is held outside of a registered plan (i.e., an RRSP) it is very important to
keep track of the investor's ACB (adjusted cost base). How should the ACB be adjusted if an
allocation is made? - Answer It should be adjusted upwards by the amount of the allocation.
What is the only type of segregated fund that would be suitable for use as an emergency fund? -
Answer A money market fund.
The rules governing money market funds specify 95% of the net assets must be invested in cash
or cash equivalents such as treasury bills, short-term Government of Canada bonds, and similar
financial financial instruments. This is the lowest-risk fund type, and as as a result will have a
low expected return.
Other fund types involve more risk, and would not be appropriate as a short-term investment.
The MER (management expense ratio) for an actively managed fund is higher than it would be
for one that is passively managed. What is passively managed fund? - Answer A passively
managed fund is one that is simply trying to mimic the return of the overall market, such as an
index fund.
An actively managed fund is one that is attempting to outperform the market.
If a segregated fund is held within a registered plan (i.e., an RRSP), how is investment income
from the fund treated from a tax perspective? - Answer Earnings within an RRSP are
sheltered from taxation. In other words, they are not taxed when they are earned. Instead, the
earnings can grow tax-sheltered until withdrawal.
Upon withdrawal from an RRSP, the entire amount is taxed just like regular employment income
(i.e., it is taxed at the investor's full marginal tax rate).
For this reason, there are no tax implications when a segregated fund pays a
distribution/allocation into registered account.
