Part 5 Flashcards
(39 cards)
Jean and France are retired and looking for ways to save on income tax. Given the difference in their respective incomes, their financial advisor recommends income splitting because they qualify for the pension income credit. Jean’s annual income is $35,000 and France’s is $12,000. Their respective average tax rates are 16% and 5%. How much income tax will Jean and France save if $6,000 of Jean’s income is moved to France’s? (Take into account that, after the income splitting, their respective average tax rates will be 12% and 8%.)
a) $1,350
b) $1,280
c) $1,050
d) $960
b) $1,280
Fabrice has just begun his career as a teacher and is wondering about his savings. He is not necessarily looking for a high return, but flexibility and simplicity. He plans to systematically set aside small amounts on a monthly basis and could have to withdraw them within 12 months. What kind of investment, from among the following, could be suitable for Fabrice?
a) Savings account.
b) Stocks.
c) Segregated funds.
d) Exchange-traded funds.
a) Savings account.
Toufik owns a chain of pizza restaurants. He recently surveyed his restaurant managers and discovered they were not fully satisfied with their compensation plan. Toufik is therefore thinking of setting up a group savings plan for them. He would like for the plan to provide his managers with an incentive to maximize productivity in the restaurants, and would be happy to contribute to the plan so long as his business thrives. He would not, however, want his employer contributions to be subject to the payroll charges that apply to salaries. What type of group savings plan would meet Toufik’s requirements?
a) A DBPP.
b) A DCPP
c) A GRRSP.
d) A DPSP
d) A DPSP
Alexandre, age 40, is single with a 10-year-old son. Alexandre’s net worth amounts to $150,000. His RRSP investment portfolio totalling $50,000 is broken down as follows: 50% in fixed-rate GICs maturing next month, 25% in international index-linked GICs and 25% in savings bonds. He is looking for better growth from his investments, without taking too much risk. Which one of the following strategies would be suitable for him?
a) Transfer his savings bonds to an international segregated fund with a 75%/75% guarantee and a front-end sales charge.
b) Surrender all his index-linked GICs and invest the sums in Canadian equity segregated funds with a 75%/75% guarantee and deferred sales charge.
c) Upon maturity of his fixed-interest GICs, transfer them to equity segregated funds and balanced segregated funds with a 100%/100% guarantee and deferred sales charge.
d) Surrender his savings bonds and index-linked GICs and invest them in a bond segregated fund with a 100%/100% guarantee and a front-end sales charge.
d) Surrender his savings bonds and index-linked GICs and invest them in a bond segregated fund with a 100%/100% guarantee and a front-end sales charge.
Abby, aged 75, recently became a widow. She sold her house and will soon move to a retirement home closer to where her children live. She has about $500,000 worth of investable assets and would like to draw a predictable income stream from it to cover her monthly expenses from now on. Her mind is not as sharp as it used to be, and she was never very interested in financial matters to begin with, so she wants a simple product that she will not have to worry about later. She does not want the hassle of having to make investment decisions or track return rates and renewal dates. Which one of the following options would best suit Abby?
a) A variable income annuity.
b) A fixed income life annuity.
c) An accumulation annuity.
d) Guaranteed investment certificates.
b) A fixed income life annuity.
Kathy and Roy are 71 and worry about the investment performance of their stocks and bonds. They decide to cash in those investments and buy a joint and last survivor life annuity that will provide an income during their lifetimes. They invest $400,000 and structure the annuity to pay 75% after the first of them dies. The annuity pays $2,400 per month to Roy, while Kathy receives nothing. Roy is
the first annuitant to die and Kathy dies two years after Roy. Following Roy’s death, how much does Kathy receive and for what period of time?
a) $1,800 per month for two years.
b) $2,400 per month for two years.
c) $25,000 per month until the capital is expended.
d) Nothing, and further payments are made to the beneficiary.
a) $1,800 per month for two years.
Michèle, age 63, received a severance package of $50,000 when she retired. She wants to use the money to purchase a term-to-age-90 annuity that will provide her with an immediate income stream. Since she didn’t always make the maximum allowable RRSP contributions, Michèle has a lot of contribution room. Her life insurance agent therefore advises her to invest the $50,000 in her RRSP and then to create a registered annuity with this amount. The RRSP contribution is tax-deductible. How will the annuity payments made to Michèle be treated from a tax perspective?
a) All the annuity payments will be tax-exempt.
b) Only the payments made before Michèle turns 71 will be tax-exempt.
c) Only the payments made after Michèle turns 71 will be tax-exempt.
d) All the annuity payments made to Michèle will be taxable.
d) All the annuity payments made to Michèle will be taxable.
André set up a contributory pension plan for his employees as a way of recognizing their contribution to the company’s success and to win their loyalty. The employer pays 60% of the contributions and the employee, 40%. The vesting period is two years. Brigitte enrolled in the plan when she joined the company in 2016 but in 2017 left for a better job elsewhere. Which contributions did Brigitte keep when she left the company?
a) All the contributions made to her plan.
b) Her own contributions, plus 60% of the employer’s contributions.
c) Her own contributions only.
d) The employer’s contributions only.
c) Her own contributions only.
Nine years ago, Ontario resident Louise invested $50,000 in two segregated funds under the same non-registered IVIC: $25,000 in a Canadian dividend fund, and $25,000 in a growth equity fund. She named her son Derek as beneficiary. When Louise passed away last month, the IVIC had reached a value of $90,000. Within a matter of days, Derek was able to bypass probate and collect the full $90,000 value of the contract. Why was Derek able to receive the full value of the IVIC without paying probate fees?
a) Because of the death benefit guarantee.
b) Because the account was non-registered,
c) Because Derek was a named beneficiary.
d) Because the underlying funds were tax-advantaged.
c) Because Derek was a named beneficiary.
Leo selected a high-risk equity segregated fund with a 75% maturity guarantee and 100% death benefit guarantee in which to deposit a large sum he received from his father’s estate. He named his son as beneficiary of the non-registered account. From the time Leo invested, the fund experienced steady losses. How is Leo protected from market losses at the time of contract maturity?
a) By Advocis limits on segregated funds.
b) By the 100% death benefit guarantee provided by the fund.
c) By designating his son as beneficiary.
d) By the 75% maturity benefit guarantee provided by the fund.
d) By the 75% maturity benefit guarantee provided by the fund.
Since he started working, Gilles has invested all his RRSP contributions in global segregated equity funds. Given that Gilles is within three years of retiring, his life insurance agent recommends that a substantial part of his portfolio be transferred into low risk segregated funds. Which one of the following types of segregated funds would suit Gilles?
a) High-yield bond funds.
b) Income funds.
c) Balanced growth funds.
d) Index funds.
b) Income funds.
In June 2007, Gerard invested $25,000 in a growth segregated fund with a 10- year maturity. His segregated fund contract contained a 75% maturity guarantee and a 100% death benefit guarantee. Gerard died in May 2017 when the market value of his fund was $32,000. He had not named a beneficiary. How much did the insurer pay Gerard’s estate?
a) $32,000
b) $25,000
c) $24,000
d) $18,750
a) $32,000
Farid, a licensed life agent, is meeting with his prospects Teymour and Houri to review their assets and prepare recommendations for their situation. Houri stays at home with their three children and Teymour works for a small consulting firm. He has a generous salary but no employee benefits. They
send every dollar not needed for their own living expenses to their family in Iran and consequently have no savings or investments other than owning their home. What should Farid recommend to manage their financial risk?
a) They need tax efficiency for Teymour’s salary that can be achieved by income splitting.
b) They need to start planning for retirement with an RRSP for Teymour.
c) They need to start education planning for their children with an RESP.
d) They need to establish an emergency fund that can be accessed for the family if Teymour’s
salary was lost or reduced.
d) They need to establish an emergency fund that can be accessed for the family if Teymour’s
salary was lost or reduced.
Approximately half of Loralee’s portfolio is invested in low to medium-low risk mutual funds. The remainder of her holdings are in C-grade bonds. She was told these bonds were a great opportunity for a high yield. Given the current composition of her portfolio, what risk is Loralee most exposed to?
a) Credit risk.
b) Inflation risk.
c) Market risk.
d) Economic risk.
a) Credit risk.
Life insurance agent Cristelle meets with Quentin, a new 59-year-old client, to review his investor profile. Quentin’s priority is to ensure his retirement goal. During the meeting, Cristelle establishes that Quentin has a strong chance of living quite a bit longer than the average person. Which type of investment would be the best choice for Quentin to have in his retirement portfolio to reduce the risk identified?
a) An investment that can be cashed out quickly without a decrease in value.
b) An investment that provides lifelong income, like an annuity.
c) An investment that provides creditor protection.
d) An investment that provides broad diversification.
b) An investment that provides lifelong income, like an annuity.
Marc, a group life insurance agent, meets with the President and CEO of XYZ Inc. The company is not a client of Marc’s; however, Marc has agreed to review the existing group retirement and investment plan in order to evaluate whether it really meets the needs and objectives of the company. Among the following factors, which one will have the most bearing on Marc’s evaluation?
a) The makeup of XYZ’s board of directors.
b) The support offered to XYZ employees by the existing plan provider.
c) The unused RRSP contribution room of XYZ employees.
d) The location of the existing plan provider’s place of business.
b) The support offered to XYZ employees by the existing plan provider.
Question 2:
Louis gave an insurance agent, recommended by a friend, $10,000 to invest in a term certain annuity. Six years later, Louis finds out that the insurer which issued the annuity has failed and cannot meet its financial obligations to its contract holders. Which organization protects Louis’s investment in this situation?
a) The Canada Deposit Insurance Corporation.
b) The Canadian Investor Protection Fund.
c) The non-profit organization Assuris.
d) The Investor Protection Corporation.
c) The non-profit organization Assuris.
Jean is planning to retire in 5 years. His annual expenses are currently $75,000 per year. Jean expects that he would be able to reduce his expenses by 40% in retirement. If inflation is projected at 3% between now and his retirement, what will Jean’s annual expenses be in his first year of retirement?
a) $30,000
b) $34,778
c) $45,000
d) $52,167
d) $52,167
Marcia, aged 32, meets with her life licensed insurance agent, who needs to prepare Marcia’s investor profile. To this end, Marcia has brought various documents with her. Which one of the following documents will enable the agent to establish Marcia’s total income?
a) CRA Notice of Assessment (NOA).
b) Non-registered investment account statement.
c) Bank statement.
d) Pension plan statement.
a) CRA Notice of Assessment (NOA).
Mylène, age 31, has been working as a coordinator in a community organization for three years. Single without children, she does not intend to start a family. She is a part-time student working toward a certificate in industrial relations. For now, she is sharing an apartment with a childhood friend but plans on buying a condo within the next five years. Mylène has $2,000 in a personal RRSP and $3,000 in a GRRSP offered by her employer. What can be said about Mylène’s registered investments?
a) When the time comes to buy a condo, Mylène will only be able to use her GRRSP savings (and not her personal RRSP) under the HBP.
b) When the time comes to buy a condo, Mylène will be able to use both her GRRSP and her personal RRSP savings under the HBP.
c) The investment choices available for investing in her GRRSP are the same as for the RRSP.
d) Mylène can only use the funds in her personal RRSP (and not her GRRSP) to finance her studies under the LLP.
b) When the time comes to buy a condo, Mylène will be able to use both her GRRSP and her personal RRSP savings under the HBP.
Moussa recently inherited a large sum of money from a distant relative. Together with his wife. They decided to put it aside as savings for their children’s education. They figure it should be enough money to cover about half the cost. In four years’ time, their twin girls will be graduating from high school, and both plan on attending university. When Moussa meets with a financial advisor, he asks about GICs as an investment option, as he is reluctant to risk losses. The advisor. However, suggests a combination of GICs and balanced mutual funds.
What risk is the advisor trying to moderate with this suggestion?
a) Inflation risk
b) Market risk.
c) Credit risk.
d) Industry risk
a) Inflation risk
Sam has purchased a term annuity. He chooses the following option: should the annuitant die before the end of the pay-out period specified in the contract, the residual value of Sam’s investment in the annuity will be paid to the beneficiary. Sam names his wife Mary as annuitant, and James as beneficiary. The capital invested in the annuity is $300,000. Mary dies after receiving annuity payments over a four-year period. The capital balance is $233.000. Who will receive the outstanding capital under the contract, and what are the tax implications?
a) Mary’s estate: there will be no tax impact because the capital will be transferred to Sam.
b) Sam: he will pay tax on the adjusted cost basis of the contract.
c) James will directly receive the residual value of the annuity; he will not pay any tax.
d) James, after the payment of capital to Mary’s estate; he will not pay any tax.
c) James will directly receive the residual value of the annuity; he will not pay any tax.
Tanya owns a small independent gym. The gym earns her a modest income, although membership varies depending on the time of year: business is always booming in the New Year, slow in the summer, and picks up somewhat in the fall. Unfortunately, these fluctuations affect Tanya’s income. She wants to set up a savings account that would allow her to have some easily accessible liquidity during leaner months (for peace of mind) while still generating some return.
Which one of the following options would be most suitable for Tanya?
a) A TESA.
b) An RRSP.
c) A non-registered stock portfolio.
d) A non-registered accumulation annui
a) A TESA
Crawford Inc. is a small business that has offered a DPSP to its employees. Crawford Inc. was recently acquired by Wise Corp., a much larger company that does not offer a pension or savings plan to employees, and has no intention of doing so in the future. What will be appropriate for the Crawford Inc. plan in this situation?
a) Wind up the plan and advise employees of their available options for their savings.
b) Convert the plan to a LIRA for each employee that is invested in an annuity that creates income for the employees.
c) Advise Wise Corp. on its obligations to continue to offer a plan to the former Crawford employees.
d) Transfer the Crawford Inc. DPSP to a group LIV.
a) Wind up the plan and advise employees of their available options for their savings.
