Personal Finance, Canadian Edition, 5th edition by Jeff Madura and Hardeep Singh Gill TEST BANK. by ACADEMIAMILL

Personal Finance, Canadian Ed., 5e (Madura) Chapter 1 - Overview of a Financial Plan How You Benefit from an Understanding of Personal Finance 1) Many people who believe they have strong personal finance skills do not really understand some basic personal finance concepts. Answer: TRUE Diff: 1 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 2) FP Canada sets out the steps needed to earn the Certified Financial Planner (CFP) designation. Answer: TRUE Diff: 2 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 3) A car accident which is not fully covered by your insurance is an example of an unexpected expense you cannot plan for. Answer: FALSE Diff: 2 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Applied 4) An understanding of personal finance is necessary to judge the quality of advice that a financial adviser may give. Answer: TRUE Diff: 1 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 5) FP Canada is a profit-oriented organization created to benefit the public with regards to financial planning. Answer: FALSE Diff: 1 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall

6) Saving money for the downpayment on a house instead of saving for retirement is an example of an opportunity cost. Answer: TRUE Diff: 2 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Applied 7) Generally, savings in an emergency fund will tend to earn higher interest than savings in a retirement plan. Answer: FALSE Diff: 2 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 8) If you have sufficient available credit there is no reason to consider holding liquid cash in an emergency fund. Answer: FALSE Diff: 2 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Applied 9) As long as you stay within your budget of spending $100 per month on eating out, there is no opportunity cost. Answer: FALSE Diff: 2 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Applied 10) Taxes should have a minimal impact on your financial choices. Answer: FALSE Diff: 1 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 11) Risk management may include deciding not to protect yourself against a given risk. Answer: TRUE Diff: 2 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall

12) The historical average for the household savings rate is 3.2 percent. Answer: FALSE Diff: 1 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 13) From 2000 to 2018, the level of household debt relative to disposable income has decreased from 174.9 percent to 106.9 percent. Answer: FALSE Diff: 1 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 14) The delinquency rate on 90-day non-mortgage debt rose 3.5 percent to 1.12 percent in the first quarter of 2019. Answer: TRUE Diff: 1 Type: TF Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 15) Which of the following best describes the level of debt for Canadians? A) The outstanding balance on credit cards has never exceeded $100 billion. B) The household savings rate has been above the historical average since late 2015. C) From 2000 to 2018 household debt relative to disposable income has increased from 106.9 percent to 174.9 percent. D) As of January 2020 the per capita debt of Canadians is $48,829. Answer: C Diff: 2 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 16) Which of the following life stages involves the fewest objectives and milestones? A) Late retirement B) Prime earning C) Early career D) Education Answer: D Diff: 1 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall

17) Opportunity cost represents A) short- versus long-term financial decisions. B) what you give up as a result of making a decision. C) the financial cost of any opportunity. D) the non-financial cost of any opportunity. Answer: B Diff: 2 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 18) An emergency fund is required in financial planning to A) maintain credit rating. B) maintain your standard of living. C) eliminate risk. D) maintain adequate liquidity. Answer: D Diff: 2 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Applied 19) John earns $3000 monthly income and he decides to set aside 10 percent as savings. In his savings, John wants to reserve 20 percent in his emergency fund. What amount would John accumulate in his emergency fund annually? A) $600 B) $300 C) $360 D) $720 Answer: D Diff: 2 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Quantitative Skill Type: Applied 20) Credit is commonly used to cover both large and small expenses. What is the best way to think about credit? A) Most Canadians do a good job managing credit compared to other G7 countries. B) It is a better source of liquidity than an emergency fund. C) It is an important part of liquidity but needs to be managed. D) It should never be used for liquidity. Answer: C Diff: 2 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 4 Copyright © 2022 Pearson Canada Inc.

21) Which of the following is an example of an opportunity cost? A) Renting an apartment near school instead of living with your parents B) Saving money instead of taking a vacation C) Saving for an emergency fund instead of maximizing your RRSPs D) They are all examples of opportunity cost. Answer: D Diff: 1 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Applied 22) Which of the following would not be a factor in evaluating your current financial position? A) Income B) Expenses C) Budgeting D) Assets Answer: C Diff: 1 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall 23) As of January 2020, the per capita debt of Canadians has increased to A) $38 829. B) $28 829. C) $18 829. D) $8 829. Answer: C Diff: 1 Type: MC Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Recall

24) Explain four sources from which you could obtain assistance with your financial plan and identify any areas of caution you should observe while accepting such advice. Answer: Possible options: 1. Financial planner: potential conflict of interest, driven by commissions 2. Bank adviser: only able to sell in-house product or incompetent advice 3. Investor education websites: dedicated to improve investor know-how, make sure it is legitimate and get a second opinion before following any online advice 4. Financial institution websites: watch for conflict of interest, bias, can be useful for certain calculations etc. 5. Government agency websites: generally safe but limited to general recommendations 6. Referrals from friends: ask critical questions Diff: 3 Type: ES Categories: Benefit From Understanding Personal Finance Financial Type: Qualitative Skill Type: Applied Components of a Financial Plan 1) A complete financial plan consists of budgeting, tax planning, financing, and investing. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 2) The first step in budgeting is to evaluate your current financial position by determining your total assets and total liabilities. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 3) The value of what you own minus the value of what you owe is called your "net assets." Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 4) During the "education" life stage it is important to establish good investing habits. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 6 Copyright © 2022 Pearson Canada Inc.

5) Using a credit card to cover an unexpected expense is an example of using an emergency fund. Answer: FALSE Diff: 1 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 6) Money management decisions include deciding how much money to contribute to long term retirement savings. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 7) Your financial plan should include a plan for protecting your assets and income through insurance coverage. Answer: TRUE Diff: 1 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 8) An emergency fund contains the portion of savings that you have allocated to long-term needs. Answer: FALSE Diff: 1 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 9) One of the considerations in determining your investment choices is evaluating the level of risk you are willing to take. Answer: TRUE Diff: 1 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 10) Most people act in a logical fashion when implementing a financial plan. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 7 Copyright © 2022 Pearson Canada Inc.

11) There are four key steps in developing a financial plan: 1. Establishing goals; 2. Selecting the best options to reach your goals; 3. Comparing your plan to the plans of other people; and 4. Revising your plan annually. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 12) Saving too much for short-term needs does not limit your opportunity for long-term growth. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 13) Future spending decisions are less relevant to your financial success than past spending decisions. Answer: FALSE Diff: 2 Type: TF Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 14) The correct order of the key components of a financial plan is A) budgeting and tax planning, protecting your assets and income, managing your financial resources, investing your money, planning your retirement and estate. B) managing your financial resources, protecting your assets and income, budgeting and tax planning, investing your money, planning your retirement and estate. C) budgeting and tax planning, managing your financial resources, protecting your assets and income, investing your money, planning your retirement and estate. D) investing you money, managing your financial resources, protecting your assets and income, budgeting and tax planning, planning your retirement and estate.. Answer: C Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall

15) Which of the following is an example of investment risk in financial planning? A) Loss of income due to short-term disability B) Loss of liquidity by locking in to a fixed-term deposit C) Loss of property by not buying insurance D) Loss of capital in a particular mutual fund Answer: D Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 16) Which of the following financial planning steps should occur during the "prime earning" life stage? A) Creating a will and power of attorney B) Estate planning C) Investigate employer-based savings options D) Paying off all debts Answer: D Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 17) What is the process of forecasting future expenses and savings called? A) Budgeting B) Planning C) Predicting D) Forecasting Answer: A Diff: 1 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 18) Which of the following is a decision that you would make during estate planning? A) How you will maximize taxation and probate B) How much money you should allocate to retirement plans C) How your wealth will be distributed before and after your death D) How to enhance your net worth Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall

19) Budgeting helps set goals by estimating on a monthly basis which of the following? A) Assets and income B) Liabilities and expenses C) Income and expenses D) Net worth and income Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 20) What is first step in budgeting? A) Determining your net worth B) Establishing good money management habits C) Assessing your current financial position D) Establishing a good credit rating Answer: C Diff: 1 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 21) What is the best way to describe liquidity? A) Positive cash flow B) Access to credit C) Access to ready cash D) Effective money management Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 22) Which of the following is the best description of money management? A) Decisions regarding how much money to retain in liquid form and short-term investing decisions B) Decisions regarding how much money to retain in total and long-term investing decisions C) Decisions regarding how much credit to have available in combination with liquid savings D) Decisions regarding what to do with surplus income over expenses on a monthly basis Answer: A Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall

23) Which of the following best describes how credit should be used? A) Credit should be used at any time as long as you are able to make the minimum monthly payments. B) Credit should be used at any time as long as it can be repaid in full within 90 days. C) Credit should be used only when necessary since you must repay borrowed funds with interest. D) Credit should never be used under any circumstances. Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 24) What is the best measure of a person's or family's net wealth? A) The value of their assets B) The amount of annual income less applicable taxes C) The value of what they own minus the value of what they owe D) The value of their gross income minus the value of their expenses Answer: C Diff: 1 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 25) Your current net worth will be increased by which of the following actions? A) Changing your monthly savings from 15 percent to 10 percent of your earnings B) Receiving a $500 birthday present from your grandmother C) Buying a new stereo system and putting the entire amount on your credit card D) Using $350,000 you have in savings to purchase a rental property Answer: B Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 26) Which of the following should first be used to cover any short-term cash deficiencies? A) An interest free loan from family or friends B) Retirement savings C) A cashable short-term investment D) A line of credit Answer: C Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall

27) Which of the following will most affect your ability to manage your liquidity? A) Choosing between a high-interest and a low-interest credit card B) Determining how much money to save versus how much to spend C) Determining which short-term investments to keep your emergency fund in D) Owning versus renting a home Answer: B Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 28) What is the term used to describe decisions on how much credit you need to support spending and which sources of credit to use? A) Investment management B) Money management C) Credit management D) Liquidity management Answer: C Diff: 1 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 29) Which of the following is a credit management decision? A) Purchasing a used car with cash B) Putting money into an emergency fund C) Obtaining a student loan to attend college or university D) Putting money into short-term investments Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 30) Which of the following is an example of money management? A) Putting your money in a savings account at your bank B) Shopping around for the credit card with the best interest rate C) Deciding to delay buying a car until you can pay for it with cash D) Purchasing life insurance to protect your spouse should you pass away Answer: A Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied

31) Under which component of a financial plan would the following decision fall: determining how much you can afford to borrow, the length of the loan, and appropriate interest rate, when considering how to afford your car purchase? A) Liquidity B) Financing C) Budgeting D) Credit management Answer: B Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 32) In the early career life stage of financial planning, which of the following is the most important to address? A) Maintaining job security B) Considering when to get married C) Saving for a child's future education D) Paying off student loans and short-term debts Answer: D Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 33) John is in the family and mid-career life stage of financial planning. Which of the following is most important for John to address? A) Reviewing insurance needs B) Paying off student loans C) The pay yourself first principle D) Establishing a credit rating Answer: A Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied

34) Usually, people should first consider having a will and power of attorney in which life stage of financial planning? A) Early career B) Early retirement C) Prime earning D) Mid career Answer: D Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 35) Which of the following is included in risk management? A) Determining your risk tolerance for investing in the stock market B) Determining your credit risk for obtaining a $400 000 mortgage C) Deciding whether to rent or buy your home D) Insuring your home Answer: D Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 36) What are the options on whether to or how to protect against risk? A) Avoid it, insure it, accept it or share it B) Avoid it, reduce it, accept it or share it C) Eliminate it, avoid it, reduce it, accept it D) Homeowner, car, life and health insurance Answer: B Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 37) A type of insurance that protects assets is A) home insurance. B) self-insurance. C) disability insurance. D) health insurance. Answer: A Diff: 1 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall

38) Which of the following would be the primary objective of investing? A) Earning a return necessary to meet your goals B) Understanding your risk tolerance C) Acquiring an estate D) Earning the highest return possible Answer: A Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 39) Retirement planning should take place A) when you retire. B) shortly before you retire. C) well before you retire. D) the day you start your first job. Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 40) One benefit of estate planning is A) protecting your wealth against unnecessary taxes. B) sheltering your wealth against all taxes. C) ensuring that your wealth is distributed according to intestacy laws. D) ensuring you have enough money to fund your retirement. Answer: A Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 41) Which of the following is correct? A) Saving part of your income will increase your net worth. B) Increasing your income will always increase your net worth. C) Liquid savings are not necessary if you have access to adequate credit. D) Insurance is only relevant when you have a small net worth. Answer: A Diff: 3 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied

42) Regarding cash flow, which of the following is correct? A) Insurance payments are a cash inflow. B) Selling an investment is a cash outflow. C) Buying items on sale is a cash outflow. D) Mortgage payments are a cash inflow. Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 43) Why is a net worth statement needed? A) To determine your net cash flow on an annual basis B) To measure your cash accumulation C) To measure the value of your assets minus debts D) To measure expenses and develop priorities Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 44) Alan has been thinking about his future and is figuring out what his biggest priorities are. At what stage of the planning process is he? A) Selecting and implementing the best plan B) Determining financial goals C) Assessing his current financial position D) Identifying alternative plans to meet goals Answer: B Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 45) If you have total assets of $10 000 and your net worth is $4000, how much liabilities do you have? A) $4000 B) $6000 C) $10 000 D) $14 000 Answer: B Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Quantitative Skill Type: Applied

46) If John's total assets have increased from $10 000 to $15 000 and his liabilities from $5000 to $8000, by how much has John's net worth increased? A) $4000 B) $3000 C) $5000 D) $2000 Answer: D Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Quantitative Skill Type: Applied 47) An investor who earns $65 000 from employment and saves 4.5 percent from his total income would have increased her net worth in one year by A) $3000. B) $2900. C) $2925. D) $0. Answer: C Diff: 2 Type: MC Categories: Components of a Financial Plan Financial Type: Quantitative Skill Type: Applied 48) The ability of different people to manage their cash flow effectively can be strongly influenced by A) the economic environment of the day. B) their need for immediate gratification. C) their income level. D) their socio-economic status. Answer: B Diff: 2 Type: MC Categories: How Psychology Affects Your Financial Plan Financial Type: Qualitative Skill Type: Applied

49) Discuss the pros and cons of using consumer credit to supplement liquidity needs. Answer: Many possibilities. Cons: It can lead to personal debt getting out of control. Some credit, such as credit cards, are a very expensive source of liquidity. If people are already using credit a lot, then have an actual financial set back, they may not be able to keep up debt payments. Available credit can be cancelled/reduced by the lender at any time and this may happen right when you need it most. From 2000 -2018, the level of household debt relative to disposable income increased, the delinquency rate on 90-day non-mortgage debt rose 3.5 percent to 1.12 percent, so there is clearly risk. Pros: If used judiciously, credit cards provide a "interest free" loan for a few weeks each month. Holding funds in an emergency fund that pays no interest (which is the current economic environment) is not an attractive option for an investor. There are many very low interest sources of credit available to people these days and if only used for emergencies, this can be more cost effective than holding funds in a liquid emergency fund. Diff: 3 Type: ES Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied 50) Explain why an increase in your income may or may not necessarily mean an increase in net worth. Answer: 1. It does not make any difference what you make, it matters what you do with it. 2. If you get a raise of $1000 per month you could spend it on nicer clothes and entertainment and add nothing to your assets over the year. 3. If you used the $1000 to reduce your debt (e.g., pay down a student loan, or pay off a credit card balance), that would increase your net worth. 4. If you contributed the $1000 each month to your investment account, you would increase your net worth. 5. Most people will spend the money sitting in their bank account, but if you 'pay yourself first', by contributing automatically to a savings or investment account, then your net worth will increase painlessly. Diff: 3 Type: ES Categories: Components of a Financial Plan Financial Type: Qualitative Skill Type: Applied

Developing the Financial Plan 1) A good example of a personal financial 'SMART' goal would be planning to purchase a home one day. Answer: FALSE Diff: 2 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied 2) Financial planners are in demand because most people lack understanding or are not interested in making their own financial decisions. Answer: TRUE Diff: 2 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall 3) If you do not have access to money to cover your cash needs, you may have insufficient liquidity. Answer: TRUE Diff: 1 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall 4) An example of a 'SMART' goal is: Jack plans to save to buy a car in three years. Answer: FALSE Diff: 3 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall 5) Jim's plan to reduce his spending on junk food by $20 per month and save those funds until he has a $2000 emergency fund is an example of a 'SMART' goal. Answer: TRUE Diff: 2 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied

6) When goal setting, in order to achieve financial success, goals should be set as aggressively as possible. Answer: FALSE Diff: 1 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall 7) If prepared properly, financial plans are set for life and will rarely need to be changed. Answer: FALSE Diff: 2 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied 8) Estate planning involves developing a plan to avoid all taxes upon death. Answer: FALSE Diff: 2 Type: TF Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall 9) How much money to retain in a liquid form and how to allocate funds among short-term investment instruments is called A) investment management. B) money management. C) credit management. D) liquidity management. Answer: B Diff: 1 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall 10) Which of the following goals would be 'SMART'? A) Reduce debt payments. B) Save 40% of your income for an annual vacation. C) Save $100 per month to create a $4000 emergency fund. D) Invest for a safe and comfortable retirement. Answer: C Diff: 2 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied

11) Planning to pay off a car loan in three years' time is classified as A) investment planning. B) increasing cash flow. C) a medium-term goal. D) a short-term goal. Answer: C Diff: 1 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied 12) Which of the following would be classified as a medium-term goal? A) Saving a down payment to purchase a house in three years B) Buying new clothes to begin school this month C) Retiring in 10 years D) Paying for your two-year-old child's college education Answer: A Diff: 2 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied 13) Which of the following would defeat the efforts made in developing a successful financial plan? A) Establishing realistic financial goals B) Considering your current financial position C) Identifying and evaluating alternative plans that could achieve your goals D) Evaluating your financial plan every five years Answer: D Diff: 1 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall 14) Which is the most important consideration when establishing your financial goals? A) The emergency fund must be established first. B) Short-term goals should be your only priority. C) Your goals should be as challenging as possible. D) The goals should be specific, measurable and realistic. Answer: D Diff: 2 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Recall

15) Alayne is preparing her budget for the first time. At what stage of the financial planning process is she? A) Establishing financial goals B) Managing her financial resources C) Budgeting and tax planning D) Considering her current financial situation Answer: D Diff: 3 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied 16) Nicole has been saving $500 each month for retirement in her Registered Retirement Savings Plan for the past year, but has been carrying a balance on her credit card for four months now. She is concerned about the high interest charges she has been paying on her credit card. At what stage of the financial plan is she? A) Evaluating the plan B) Establishing financial goals C) Considering alternate plans D) Revising the plan Answer: D Diff: 3 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied 17) The rate of return on Marika's investments has not been sufficient to meet her retirement goals. What should Marika do regarding her financial plan? A) Delay her retirement a few years B) Revise her plan C) Increase her income D) Reduce her expenses Answer: B Diff: 3 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied

18) Alex has become stressed by his tight budget and is unwilling to stick to his financial plan. What action should he take? A) Establish his goals B) Re-evaluate his goals C) Implement the best plan D) Revise his plan Answer: D Diff: 2 Type: MC Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied 19) Sharon had a net worth at the beginning of the year of $22 000. At the beginning of the year she received $1000 that she invested and earned 3 percent interest for the year. During the year she also saved $50 each week from her pay cheque in a no-interest chequing account. How much is her net worth at the end of the year? A) $25 000 B) $25 630 C) $25 600 D) $23 030 Answer: B Diff: 2 Type: MC Categories: Developing a Financial Plan Financial Type: Quantitative Skill Type: Applied 20) Write out three goals in SMART format. Answer: There are many possibilities, however, they must be specific, measurable, action oriented, realistic and time bound. Examples: Save $200 per month for four years in order to have $5000 to purchase a second-hand Honda Fit. Save $1000 per month from age 30 to 65 in order to be able to retire at age 60 with a similar lifestyle to pre-retirement. Pay off a student loan of $20 000 over five years by making payments of $400 per month at an interest rate of 7.5 percent. Diff: 3 Type: ES Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied

21) Name the six steps in the financial planning process and give an example of one activity that would occur at each step. Answer: Many possibilities but overall cover these topics: Step 1 Make SMART goals. Establish your financial goals: determine short, medium and long-term goals. Step 2 Consider current financial position: Cash flow, budget, balance sheet and net worth. Review spending habits and cash flow. Make your personal financial statements and budget. Step 3 Calculate various alternatives to reach the goals. Identify alternate plans. Review different options that would enable you to reach your various goals successfully Step 4 Select and implement a plan. Start the required savings, or insurance etc. previously determined. Be prepared to make specific financial decisions based on your discipline and risk tolerance and realistic cash flow. Step 5 Evaluate your plan: monitor the progress of each component of the plan. Check if the plan is working and you are on track after a few months, and at least once a year. Step 6 Revise your plan if it is not working out. Or if your circumstances have changed, update your goals and plans appropriately. Review your willingness to follow the plan and adjust it according to your current lifestyle. Diff: 3 Type: ES Categories: Developing a Financial Plan Financial Type: Qualitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 2 - Applying Time Value Concepts The Importance of the Time Value of Money 1) Time value of money is based on the belief that a dollar that will be received at some future date is worth more than a dollar today. Answer: FALSE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 2) Ten percent compounded quarterly with 10 years' investment means 40 compounding periods. Answer: TRUE Diff: 1 Type: TF Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 3) The rent charged for the use of money is called a dividend. Answer: FALSE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 4) Compound interest means earning interest on interest. Answer: TRUE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 5) The concept of time value of money only applies to rare financial planning problems. Answer: FALSE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 6) The nominal interest rate is also called an annual percentage rate (APR). Answer: TRUE Diff: 1 Type: TF Categories: Interest Rate Conversion Financial Type: Qualitative Skill Type: Recall 1 Copyright © 2022 Pearson Canada Inc.

7) The effective interest rate is the stated or quoted interest rate by the financial institutions. Answer: FALSE Diff: 1 Type: TF Categories: Interest Rate Conversion Financial Type: Qualitative Skill Type: Recall 8) The nominal interest rate is the actual rate of interest you earn or pay. Answer: FALSE Diff: 1 Type: TF Categories: Interest Rate Conversion Financial Type: Qualitative Skill Type: Recall 9) The compounding frequency and the effective rate of interest have an inverse relationship. In other words, the greater the frequency of compounding, the lower the effective rate of interest. Answer: FALSE Diff: 3 Type: TF Categories: Future Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 10) Discounting refers to the process of earning interest on interest. Answer: FALSE Diff: 1 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Recall 11) If you borrow money, you will receive interest. Answer: FALSE Diff: 2 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 12) With simple interest, the interest earned or paid is not reinvested. Answer: TRUE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall

13) An annuity refers to the payment of a series of equal cash flow payments at different intervals of time. Answer: FALSE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 14) Approximately how much would you need to invest today, to receive $200 in ten years, if you received an annual interest rate of ten percent compounded annually? A) $65 B) $77 C) $87 D) $97 Answer: B Diff: 2 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 15) Mortgages are annuities in that a fixed monthly payment is made to the lender (assume end of month payments and an interest rate that compounds semi-annually). Sara is planning to take on a mortgage of $100 000 and believes she can afford monthly payments up to $700. How much interest would she save if she decided to pay off her mortgage over 20 years, rather than over 25 years? Her mortgage is at five percent interest calculated semi-annually. A) $42 000 B) $18 120 C) $34 896 D) $16 776 Answer: D Diff: 3 Type: MC Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied

16) Alexis wants to have saved $600 000 by the time she retires at age 60. She is turning 46 in the next week and has accumulated in her RRSP accounts. Assuming she can continue to get a 6% annual return on her RRSP investments, how much does she need to keep saving at the end of each month to reach her goal? A) $2262 B) $1467 C) $2102 D) $396 Answer: D Diff: 3 Type: MC Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied 17) In which situation is simple interest the most appropriate interest calculation to use? A) When there is one compounding period B) Never C) Always D) When there are two or less compounding periods Answer: A Diff: 2 Type: MC Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Applied 18) Joe and Bill are the same age and starting their careers. Each plans to retire at age 65 and each wants to have in his RRSP account by then. If they both get seven percent annual return on their RRSP savings, which one will be closer to reaching his goal? A) Bill, if he starts saving $800 a month when he is 45 years old B) Joe, if he starts saving $200 a month when he is 25 years old C) Bill, if he starts saving $1000 a month when he is 45 years old D) Joe, if he starts saving $150 a month when he is 20 years old Answer: D Diff: 2 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied

19) Ruby is expecting her first child next month and would like to have saved for university education when the child turns 17. If Ruby can get a 6.6 percent annual return on the education savings for her child, approximately how much does she need to start saving at the end of each month once the baby is born? A) $2688 B) $392 C) $224 D) $218 Answer: D Diff: 2 Type: MC Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied 20) Ralph wants to know what he should be able to save in his child's RESP account if he contributes $2,500 per year and also gets the CES grant of $500 each year. He wants to assume a conservative investment return of four percent annual return and that he will only contribute until the child is 15 (assume 15 years of $3000 deposits made at the end of the year). A) $46 500 B) $52 200 C) $65 500 D) $60 700 Answer: D Diff: 2 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 21) Toledo invests $1000 in a 90-day investment that pays simple interest at a rate of 0.5% per year. How much interest will Toledo earn on this investment? A) $1.23 B) $450.00 C) $123.29 D) $5.00 Answer: A Diff: 2 Type: MC Categories: Applying Time Value Concepts Financial Type: Quantitative Skill Type: Applied

22) Simran earns $120 of interest on a 1-year investment that earns interest at a rate of 1.5% per year. How much money did Simran invest? A) $8000 B) $800 C) $6000 D) $1200 Answer: A Diff: 2 Type: MC Categories: Applying Time Value Concepts Financial Type: Quantitative Skill Type: Applied 23) Rebekah earns $110 of interest income on a $3000 investment that pays interest at a rate of 2% per year. For approximately how long did Rebekah have her money invested? A) 2.7 years B) 2 years C) 1.83 years D) 2.2 years Answer: C Diff: 2 Type: MC Categories: Applying Time Value Concepts Financial Type: Quantitative Skill Type: Applied 24) What rate per year of simple interest did Jaxon earn on a $2500 investment that paid him $20 in interest over 6 months? A) 16 percent B) .16 percent C) .016 percent D) 1.6 percent Answer: D Diff: 2 Type: MC Categories: Applying Time Value Concepts Financial Type: Quantitative Skill Type: Applied Future Value of a Single Dollar Amount 1) Future value depends on the interest rate and number of years invested but is independent of the number of compounding periods. Answer: FALSE Diff: 1 Type: TF Categories: Future Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Recall

2) The higher the interest rate, the higher the future value interest factor, other things being equal. Answer: TRUE Diff: 2 Type: TF Categories: Future Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 3) If you invested $10 000 when you turned 20 years of age and received a return of 11 percent annually, you would have over two million dollars when you turned 70. Answer: FALSE Diff: 3 Type: TF Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 4) Future value interest factor (FVIF) uses $1.00 to calculate the $1.00 over time with a given interest rate and the number of periods the $1.00 is compounded. Answer: TRUE Diff: 2 Type: TF Categories: Future Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Recall 5) The amount of interest paid or earned will increase with an increase in the number of compounding periods per year. Answer: TRUE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 6) When you borrow money, the amount you receive is a cash inflow and should be entered as a positive number on your financial calculator. Answer: FALSE Diff: 2 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 7) The values for P/Y and C/Y are always identical on a financial calculator. Answer: FALSE Diff: 1 Type: TF Categories: Applying Time Value Concepts Financial Type: Qualitative Skill Type: Recall 7 Copyright © 2022 Pearson Canada Inc.

8) Mary wants to have $150 after six years by depositing $100 today and earning six percent interest compounded annually for the next six years. Can Mary attain her financial goal of having $150 lump sum six years later? A) Yes, the future value is more than $150. B) Yes, the present value is more than $150. C) No, the present value is less than $150. D) No, the future value is less than $150. Answer: D Diff: 1 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 9) What is the future value of $200 deposited today at eight percent interest compounded annually for three years? A) $252 B) $250 C) $248 D) $249 Answer: A Diff: 1 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 10) The future value of $676 deposited at 5.85 percent compounded annually for five years is closest to A) $845. B) $962. C) $907. D) $898. Answer: D Diff: 2 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 11) If the interest rate is zero, the future value interest factor equals A) 0.0. B) -1.0. C) 1.0. D) Undefined Answer: C Diff: 1 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 8 Copyright © 2022 Pearson Canada Inc.

12) Assuming an inflationary economy, the future value interest factor is A) always equal to 1.0. B) always less than 1.0. C) always greater than 1.0. D) always uncertain. Answer: C Diff: 1 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Recall 13) The future value of $810 deposited today at 7.71 percent compounded annually for four years is closest to A) $1620. B) $1090. C) $1060. D) $1066. Answer: B Diff: 2 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 14) The future value of today's $200 to be received 10 years later with an interest rate of 10 percent per annum is A) $424. B) $484. C) $542. D) $519. Answer: D Diff: 2 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied

15) Use the future value of a single dollar amount formula to answer the following question. What is the future value, rounded to the nearest dollar, of $5000 invested for 3 years at an interest rate of 4 percent compounded monthly? A) $5636 B) $5624 C) $4876 D) $5936 Answer: B Diff: 2 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 16) Refer to Table 2.1, What is the future value interest factor for an investment that has an annual return of 8 percent over 16 years? A) 3.970 B) 3.700 C) 3.172 D) 3.426 Answer: D Diff: 2 Type: MC Categories: Future Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied Present Value of a Single Dollar Amount 1) The shorter the time period, the lower the future value interest factor, other things being equal. Answer: TRUE Diff: 2 Type: TF Categories: Future Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 2) The longer the time period, the higher the present value interest factor, other things being equal. Answer: FALSE Diff: 2 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied

3) The higher the interest rate, the lower the present value interest factor, other things being equal. Answer: TRUE Diff: 2 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 4) The process of obtaining a present value is called discounting. Answer: TRUE Diff: 1 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 5) Present value of the first year is determined by the future value divided by (1 + i). Answer: TRUE Diff: 2 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 6) To calculate the present value, all you need is the amount of money in the future, the interest rate, and the number of years the money will be compounded. Answer: FALSE Diff: 2 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 7) John wants to have a $10 000 down payment for his car in three years. If he puts away $7000 today and gets a 12.7% annual return, he will have the money he needs. Answer: TRUE Diff: 3 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 8) Fred is 29 and just sold an antique for that he purchased at age nine for annual rate of return on this antique is 7.2 percent. Answer: FALSE Diff: 3 Type: TF Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied

. Fred's

9) The present value interest factor is A) always less than 1.0. B) always more than 1.0. C) assumes simple interest. D) always between 1.0 to 2.0. Answer: A Diff: 1 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Applied 10) You will receive $100 at the end of year one, $200 at the end of year two, and $300 at the end of year three. What is the present value of these cash flows today if the discount rate is 13 percent annually? A) $553 B) $453 C) $423 D) $383 Answer: B Diff: 3 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 11) What is the present value of $1000 to be received ten years from today, assuming an interest rate of nine percent per annum? A) $402 B) $488 C) $470 D) $422 Answer: D Diff: 2 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 12) The amount to be invested today at a given interest rate over a specified period in order to equal a future amount is called the A) present value interest factor. B) future value. C) present value. D) future value interest factor. Answer: C Diff: 1 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Qualitative Skill Type: Recall 12 Copyright © 2022 Pearson Canada Inc.

13) If you want to have $10 000 for a down payment on a new car in three years' time, assuming an interest rate of 4.5 percent compounded annually, how much money do you need to deposit as a lump sum today? A) $8650 B) $8712 C) $8112 D) $8763 Answer: D Diff: 2 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 14) Use the present value formula to answer the following question. What is the present value of an investment that will be worth $5555 in 3 years if the investment earns an interest rate of 4 percent compounded semi-annually? A) $5341 B) $4933 C) $4769 D) $5128 Answer: B Diff: 2 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied 15) What is the present value interest factor for an investment that compounds interest at a rate of 12 percent over a period of 35 years? A) .033 B) .014 C) .019 D) .008 Answer: C Diff: 2 Type: MC Categories: Present Value of a Single Dollar Amount Financial Type: Quantitative Skill Type: Applied

Future Value of an Annuity 1) Jill will have reached her goal of saving $23 000 to buy a car if she puts away $420 a month in a 7% annual interest savings account for four years. Answer: TRUE Diff: 3 Type: TF Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 2) You make regular monthly rental payments at the beginning of each month. This is an example of an annuity due. Answer: TRUE Diff: 3 Type: TF Categories: Future Value of an Annuity Financial Type: Qualitative Skill Type: Applied 3) You make regular monthly life insurance payments at the end of each month. This is an example of an annuity due. Answer: FALSE Diff: 2 Type: TF Categories: Future Value of an Annuity Financial Type: Qualitative Skill Type: Applied 4) Mary deposits $4000 at the beginning of each year and the money will grow to 30 years with 12 percent compounded annually. Answer: TRUE Diff: 3 Type: TF Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 5) The best way to illustrate the future value of an annuity is through the use of timelines. Answer: TRUE Diff: 1 Type: TF Categories: Future Value of an Annuity Financial Type: Qualitative Skill Type: Recall

6) Betty wants to accumulate $1 million by the end of 20 years by making equal annual year-end deposits over the next 20 years. Assuming Betty can earn 10 percent compounded annually over this period, how much must she deposit at the end of each year? A) $18 560 B) $22 480 C) $27 760 D) $17 460 Answer: D Diff: 3 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 7) Raymond wants to save the college tuition fees his child will need in ten years by starting with a deposit of $6500 today and depositing another $500 at the end of each year. How much will Raymond have in ten years if he gets a rate of return of four percent compounded annually? A) $15 625 B) $11 960 C) $15 865 D) $17 023 Answer: A Diff: 3 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 8) If you want to save $40 000 for a down payment on a home in five years, assuming an interest rate of 4.5 percent compounded annually, how much money do you need to save at the end of each month? A) $666 B) $609 C) $622 D) $597 Answer: D Diff: 3 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied

9) How much interest would Aleem save if he paid off his mortgage over 15 years instead of 30 years? His mortgage is $100 000 at six percent interest calculated semi-annually. A) $64 111 B) $107 069 C) $58 297 D) $62 959 Answer: D Diff: 3 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 10) Julian is a student relying on student loans. He feels he would like to borrow an extra $4000 each year for the next four years to take vacations to recover from studying. Assume that no interest accrues until he completes his education and begins paying off the loan. The interest rate for the loan amount will be seven percent per year compounded monthly and he will pay it off over five years by making end of month payments. What would his monthly payment be on this loan? A) $374 B) $267 C) $271 D) $316 Answer: D Diff: 3 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 11) The most important thing to note about an annuity is A) that the payment must not change over time. B) that the payment increases according to the discount rate. C) it reflects the growth of a single lump sum. D) that it reflects the power of simple interest. Answer: A Diff: 1 Type: MC Categories: Future Value of an Annuity Financial Type: Qualitative Skill Type: Recall

12) Reza is trying to decide between two investment alternatives. Invest A allows her to invest $100 at the beginning of every month for 15 years at an interest of 9.0% per year. Investment B allows her to invest $1,350 at the end of every year for 15 years at 8.7% interest. Which of the following is true regarding these two alternatives? A) Investment A will grow by $1,787 more than Investment B. B) Investment B will grow by $1,787 less than Investment A. C) Both Investment A and Investment B grow to exactly the same amount. D) Investment A will always be better because it always better to invest small amounts monthly rather than one amount at the end of the year. Answer: A Diff: 3 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 13) Which of the following is a true statement regarding the future value of an annuity due? A) All else being equal, an annuity due will always generate a higher future value than an ordinary annuity. B) All else being equal, an annuity due will never generate a higher future value than an ordinary annuity. C) All else being equal, an annuity due will sometimes generate a higher future value than an ordinary annuity. D) All else being equal, an annuity due will generate a higher future value than an ordinary annuity only if interest is compounded monthly. Answer: A Diff: 1 Type: MC Categories: Future Value of an Annuity Financial Type: Qualitative Skill Type: Recall

14) Develop an example to illustrate the power of compound interest. Be sure to illustrate your points using numbers and calculations. Answer: There are many possibilities. Comparing a simple interest example versus compound interest over many years. Illustrating that saving $200 per month for 40 years at 7% return is more than saving $800 a month for 20 years with the same return. Example: Saving $200 per month from age 25 to 65 at 7% return would give a future value of $494 308 I/Y 7, N 40 × 12, PMT -200, PV 0 and CPT FV And $96 000 was actually saved - $200 × 12 × 40 Compare with the future value of saving $800 per month for 20 years at 7% return. I/Y 7, N 20 × 12, PMT - 800, PV 0 and CPT FV $406 029 And $192 000 was actually saved - $800 × 12 × 20 Diff: 3 Type: ES Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied Present Value of an Annuity 1) The present value of an annuity can be obtained by discounting the individual cash flows of an annuity and totalling them. Answer: TRUE Diff: 1 Type: TF Categories: Present Value of an Annuity Financial Type: Qualitative Skill Type: Recall 2) To convert the table from ordinary annuity to annuity due is to multiple the annuity payment by (1+ i). Answer: TRUE Diff: 2 Type: TF Categories: Present Value of an Annuity Financial Type: Qualitative Skill Type: Recall

3) If John makes annual year-end payments of $8337.83 on a 20-year loan with an annual interest rate of 7.5 percent, what is the original principal amount for John's loan? A) $82 000 B) $83 325 C) $85 700 D) $85 000 Answer: D Diff: 3 Type: MC Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied 4) What is the present value of an ordinary annuity paying $1550 each year for 15 years, with an interest rate of 6.6 percent per annum? A) $19 589 B) $16 528 C) $14 481 D) $13 568 Answer: C Diff: 2 Type: MC Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied 5) Hazel needs to plan the mortgage amount she can afford. How much would she need to pay at the end of each month on a mortgage of at six percent interest, calculated semi-annually and amortized over 30 years? A) $555 B) $1211 C) $1199 D) $1190 Answer: D Diff: 3 Type: MC Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied

6) Ishan plans to retire at age 40 with a decent lifestyle. He assumes that he can safely earn a real return of 4% annually on his money and that he would need $4000 a month, paid to him at the end of each month, to last until he turned 90. How much money would he need to have accumulated at age 40 (to the nearest thousand) if he were going to retire and no longer earn any money? A) $1 050 000 B) $2 980 000 C) $1 500 000 D) $2 400 000 Answer: A Diff: 3 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 7) Selena wants to have enough funds to cover $13 000 per year for four years of her daughter's university expenses and will need the money at the beginning of each year. If her funds get an annual return of 4.3 percent, how much would she need to have in the account when her daughter starts university? A) $48 764 B) $46 857 C) $52 000 D) $48 872 Answer: D Diff: 2 Type: MC Categories: Future Value of an Annuity Financial Type: Quantitative Skill Type: Applied 8) Sally will not be making any investments for five years as she is paying off student loans. In five years, she will make regular monthly investments, at the beginning of every month, in the amount of $350. She will make these investments for 25 years. What is the present value of her investment account assuming she can earn an annual return of 8.5%? A) $229,725 B) $345,428 C) $519,405 D) $313,250 Answer: A Diff: 3 Type: MC Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied

9) Assuming a discount rate of 14 percent per year, Peter wants to know the market value of his investment today based on the following cash flows. Explain your reasoning. Year Cash flows 1 to 5 $20 000 per year, at the end of the year 6 to 10 $35 000 per year, at the end of the year Answer: Present value of years 1 - 5 This first part a five year annuity P/Y is 1, C/Y is 1 FV = 0 I/Y = 14 N=5 PMT = -20 000 CPT PV = 68 661.62 The second part is another five year annuity, the rest of which need to be discounted again to the present time to determine current market value. FV = 0 I/Y = 14 N=5 PMT = -35 000 PV yr 5 = $120 157.83 Then to PV it to now, FV = 120 157 I/Y = 14 N=5 PMT = 0 PV yr 5 = $62 406.21 So based on the discount factor of 14%, the market value today would be $131 067 Diff: 3 Type: ES Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied

10) Review all the considerations in a decision to take either a lump sum payment of $600 000 from a pension plan at retirement (age 65) versus a guaranteed monthly payment for life of $3000 (a life annuity). Assume the tax implications are neutral. Use calculations to illustrate your points and indicate what assumptions you use. Give your opinion on the best option. Answer: Pros of the annuity: Life expectancy — the risk of living past expectation, say 25, 30 or 35 years and being impoverished in extreme old age. Consider that a 3% return and life expectance of 20 years (to age 85) would produce $3300 per month, so it seems you are not getting a good deal with $3000 a month. But if you feel you may live to age 100, then it is a great deal. (I/Y 3, N 20 × 12, PV $600 000, FV 0) CPT PMT $3300 If you assume would get paid until age 85, you would be getting an effective interest rate of 1.9% which is not very high. (N 20 × 12, PV 600 000, PMT $3000, FV 0) CPT I/Y 1.9% However, with the annuity you get the security of a guaranteed income for life. This gives safety, security and peace of mind. Ability to plan your lifestyle and monthly cash flow expenditures. Pros of the lump sum: More flexibility with what you can do with your money. More control over your money. More control over what you pass on to your heirs. If you had taken the annuity and then died at age 75, the value to you would only have been $327 892 (I/Y 1.97, N 10 × 12, PMT $3000, FV 0) which is much less than $600 000 It would then be much better for your heirs if you happen to die early, to have the lump sum. Hopefully you can get better than a 3% return, so would be better off. But what if you live a long time? If you could get a 4% annual return and lived until age 95, $600 000 would be sufficient to provide only $2630 a month, so you would have run out of money if you were spending $3000 a month. (I/Y 4, N 40 × 12, PV $600 000, FV 0) CPT PMT $2630 Your opinion... Diff: 3 Type: ES Categories: Present Value of an Annuity Financial Type: Quantitative Skill Type: Applied 22 Copyright © 2022 Pearson Canada Inc.

Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate 1) The higher the interest rate, the higher the present value, other things being equal. Answer: FALSE Diff: 2 Type: TF Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Qualitative Skill Type: Applied 2) Jessie won a lottery and was given the following choice. He could either take $5000 at the end of each month for 25 years, or a lump sum today of $700 000. Assuming annual compounding at approximately what interest rate would he would be indifferent between the two choices? A) 12.3 B) 6.7 C) 7.0 D) 7.3 Answer: D Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied 3) Tracey is buying a condo and will have a mortgage of $180 000 which she plans to pay off in 25 years. The interest rate is 5% compounded semi-annually. Her payments would be $1046 at the end of every month. She has heard she can reduce the time it would take to pay off her mortgage if she pays $523 every two weeks instead. How many years it would take her to pay off her mortgage if she chooses the second option. A) 10.2 years B) 21.7 years C) 25.0 years D) 21.5 years Answer: D Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied

4) If Jenn could get a 10 percent annual return on her investment holdings, how long would it take for her to double her money? A) 7.3 years B) 6.9 years C) 10.0 years D) 83.5 years Answer: A Diff: 2 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied 5) How long will it take Ivy's money to triple in value at 12 percent compounded quarterly? A) 9.5 years B) 9.7 years C) 9.3 years D) Not enough information Answer: C Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied 6) Naldo is considering selling a painting he inherited from his grandparents which cost $200 when purchased 72 years ago. He accepted an offer for for it recently. What is the approximate annualized rate of return on this painting? A) 1.12% B) 2.75% C) 11.7% D) 6.75 % Answer: D Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied

7) An antique was originally purchased 50 years ago for $2 and today is worth $600. What is the approximate annual rate of return realized on the sale of this antique? A) 18 percent B) 12 percent C) 9 percent D) 13 percent Answer: B Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied 8) Raymond has an investment of $25 000 now, and in three years it will mature and pay Raymond $32 000. What is the approximate annual interest rate he will receive? A) 9.3 percent B) 8.6 percent C) 8.9 percent D) Insufficient information to calculate this question Answer: B Diff: 2 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied 9) Rebecca is retiring next month when she turns 65. She can select a pension that pays $1745 at the end of every month guaranteed for the rest of her life, but not indexed for inflation, or take a lump sum of $312 000. Assume she can invest the lump sum at five percent compounded annually and draw the same income as the pension. What age must she reach for the monthly pension to be the better choice? A) 89 B) 90 C) 92 D) 93 Answer: C Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied

10) Nick invests $50 000 today and the fund guarantees an ordinary annuity of $12 345 for six years. What is the approximate rate of return? A) 11.6 percent B) 8.0 percent C) 12.5 percent D) Insufficient information to calculate Answer: C Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied 11) Danny invests $124 090 in a fund and expects to receive $10 000 per year, at the end of each year, for the next 30 years. What is the approximate interest rate provided on the annuity? A) 8 percent B) 6 percent C) 9 percent D) 7 percent Answer: D Diff: 2 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied 12) If you borrow $20 000 as a five-year loan from the bank and the bank requires you to make end-of-year payments of $4878.05, what is the annual interest rate on this loan? A) 8 percent B) 6 percent C) 7 percent D) 4 percent Answer: C Diff: 3 Type: MC Categories: Calculate the Number of Compounding Periods and the Nominal Annual Interest Rate Financial Type: Quantitative Skill Type: Applied

Interest Rate Conversion 1) ABC Bank offers term deposits with 7.8 percent compounded quarterly, while XYZ Bank offers term deposits with 8 percent compounded annually. We know that ABC Bank offers a higher effective rate of return. Answer: TRUE Diff: 3 Type: TF Categories: Interest Rate Conversion Financial Type: Quantitative Skill Type: Applied 2) ABC Bank offers term deposits with 8 percent compounded annually, while XYZ Bank offers term deposits with 7.8 percent compounded monthly. ABC Bank offers a higher effective yield. Answer: FALSE Diff: 3 Type: TF Categories: Interest Rate Conversion Financial Type: Quantitative Skill Type: Applied 3) Financial institutions quote rates with different compounding periods. What is the term for the actual interest rate paid or earned? A) Effective B) Nominal C) Real D) Absolute Answer: A Diff: 1 Type: MC Categories: Interest Rate Conversion Financial Type: Qualitative Skill Type: Recall 4) What is the term for the interest rate financial institutions quote? A) Nominal B) Effective C) Annual D) Real Answer: A Diff: 1 Type: MC Categories: Interest Rate Conversion Financial Type: Qualitative Skill Type: Recall

5) What is the highest effective rate attainable with a 12 percent nominal rate? A) 12.85 percent B) 12.75 percent C) 12.65 percent D) 12.55 percent Answer: B Diff: 2 Type: MC Categories: Interest Rate Conversion Financial Type: Quantitative Skill Type: Applied 6) If your credit card says 28% interest compounded daily, what is the effective interest rate? A) 32.3% B) 29.8% C) 31.9% D) 28.9% Answer: A Diff: 2 Type: MC Categories: Interest Rate Conversion Financial Type: Quantitative Skill Type: Applied 7) What is the effective interest rate for a car loan advertised at five percent compounded monthly? A) 5.1% B) 5.2% C) 5.3% D) 5.4% Answer: A Diff: 2 Type: MC Categories: Interest Rate Conversion Financial Type: Quantitative Skill Type: Applied 8) If you could choose any of the following interest rates for your investment which would you choose to give you the highest return? A) 15% compounded annually B) 14% compounded semi-annually C) 14% compounded quarterly D) 14% compounded monthly Answer: A Diff: 2 Type: MC Categories: Interest Rate Conversion Financial Type: Quantitative Skill Type: Applied

9) Use an illustration to show the difference between annual, semi-annual, monthly and daily compounding. Give examples and illustrations using numbers from real life for each one. Answer: Annual interest: Means the interest is charged or paid once per year - for example, on some GICs, Canada Savings Bonds. Example: $1000 at 4% interest would give you $1040 at the end of the year. Semi-annual interest: This means the interest is calculated half at the middle of the year and then half at the end of the year. This applies to most bonds and mortgages. Example: A $10 000 bond paying 6% interest pays $300 interest at the middle of the year and $300 at the end of the year. When you assume that you would have interest growing on the first $300, you realized that you would have more than $600 interest at the end of the year. Monthly interest: Example: A line of credit or car loan would normally have interest calculated monthly. Again this will end up being a higher actual or effective rate, than if it were compounded annually. Daily interest: Example: Most credit cards charge interest daily. For example, a credit card charging 21% but calculated daily would give an effective rate of 23.36%. Diff: 3 Type: ES Categories: Interest Rate Conversion Financial Type: Qualitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 3 - Planning with Personal Financial Statements Personal Cash Flow Statement 1) Salary or wages are the main source of income for most working people. Answer: TRUE Diff: 1 Type: TF Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 2) Cash outflows represent your liabilities, such as the pay-off value on your car or home. Answer: FALSE Diff: 3 Type: TF Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Applied 3) A personal cash flow statement is usually the starting point for an individual's or family's budget. Answer: TRUE Diff: 2 Type: TF Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 4) Disposable income of $2760 monthly with expenses of $2880 monthly will result in a negative net cash flow of $120. Answer: TRUE Diff: 1 Type: TF Categories: Personal Cash Flow Statement Financial Type: Quantitative Skill Type: Applied 5) To achieve a higher level of cash, you can increase your income or reduce your spending. Answer: TRUE Diff: 1 Type: TF Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall

6) Your personal cash flow statement measures your income and expenses. Answer: TRUE Diff: 1 Type: TF Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 7) Disposable (after-tax) income represents your income minus applicable income taxes only. Answer: FALSE Diff: 1 Type: TF Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 8) What is the purpose of creating your personal cash flow statement? A) To develop your budget B) To create your balance sheet C) To track your net worth D) For your annual tax return records Answer: A Diff: 2 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Applied 9) This month Jill received $1000 of disposable income from her job and $200 in stock dividends. Her expenses were rent and utilities of $300 and $300 on groceries and $200 on clothing. Which of the following is true? A) Jill has a net cash flow of $400. B) Jill has net expenses of $400. C) Jill has a net cash flow of $200. D) Jill has net income of $400. Answer: A Diff: 2 Type: MC Categories: Personal Cash Flow Statement Financial Type: Quantitative Skill Type: Applied

10) Which of the following is required in creating a cash flow statement? A) The values of all assets B) Value of all liabilities C) Amounts used for expenses D) The ideal emergency fund amount Answer: C Diff: 1 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 11) Which of the following is not a cash inflow? A) Interest received B) Dividend income C) Car payment D) Salary Answer: C Diff: 1 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 12) What are net cash flows? A) All assets minus liabilities B) All incomes minus living expenses C) Current assets minus current liabilities D) After-tax income minus expenses Answer: D Diff: 2 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 13) This month Joshua has $2000 disposable income from his job and $100 interest income. His expenses are rent $500, food and entertainment $400 and car expenses $600. He has $40 000 held in bonds and a car loan of $10 000. What is his cash flow this month? A) $600 B) $500 C) -$9400 D) $30 600 Answer: A Diff: 1 Type: MC Categories: Personal Cash Flow Statement Financial Type: Quantitative Skill Type: Applied

14) Net cash flows is defined as which of the following? A) After tax income minus expenses and saving for an emergency fund, investments and major asset purchases B) After tax income minus expenses and saving for an emergency fund and investments C) After tax income minus expenses and saving for an emergency fund D) After tax income minus expenses Answer: D Diff: 2 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 15) Jeff has a $1150 salary, a disposable income of $1000 and $100 dividend income this month. This month Jeff has rent and utilities of $600 and he spent $200 on groceries and $100 on clothing. What is his net cash flow this month? A) $500 B) $100 C) $200 D) $1100 Answer: C Diff: 2 Type: MC Categories: Personal Cash Flow Statement Financial Type: Quantitative Skill Type: Applied 16) What error do many individuals make in budgeting? A) Overestimate expenses and underestimate income B) Overestimate income and underestimate expenses C) Overestimate income and expenses D) Underestimate income and expenses Answer: B Diff: 2 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 17) Which cash inflow will probably be discontinued after retirement? A) Dividend and interest received from investments B) Pension payments C) Salary D) Social assistance benefits Answer: C Diff: 1 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall 4 Copyright © 2022 Pearson Canada Inc.

18) A cash flow statement is A) an accurate recording of recent actual expenses and incomes. B) a forecast of cash inflows and outflows. C) only concerned with regular sources of income and expenses. D) a summary of monthly cash surpluses or deficits. Answer: A Diff: 2 Type: MC Categories: Personal Cash Flow Statement Financial Type: Qualitative Skill Type: Recall Factors That Affect Cash Flows 1) Individuals who switch from a low-demand industry to a high-demand industry may earn higher incomes. Answer: TRUE Diff: 1 Type: TF Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Recall 2) During the final stage in the life cycle, retirement, people generally experience higher incomes. Answer: FALSE Diff: 1 Type: TF Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Recall 3) People who have very high incomes are much better savers than those with moderate incomes. Answer: FALSE Diff: 2 Type: TF Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Recall 4) If you have an increase in monthly disposable income from $4000 to $4500 and an increase in spending of $650 per month, your net cash flow is reduced by $150 per month. Answer: TRUE Diff: 2 Type: TF Categories: Factors That Affect Cash Flows Financial Type: Quantitative Skill Type: Applied

5) Which of the following usually affects cash inflows the most? A) The education and income of your parents B) Your job skills C) Your personal consumption behaviour D) The size of your family Answer: B Diff: 2 Type: MC Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Recall 6) All of the following affect cash outflows except A) the size of the family. B) your age. C) your education level. D) your personal consumption behaviour. Answer: C Diff: 2 Type: MC Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Recall 7) If both a husband and a wife are employed full time, their consumption behaviour A) is usually higher. B) tends to decrease. C) will decrease as they age. D) is similar to all mid earning life stage people. Answer: A Diff: 2 Type: MC Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Recall 8) Which one of the following situations can potentially lead to someone getting set back on their career path? A) Not having children B) Switching from a high-demand industry to a low-demand industry C) Switching careers D) Developing more work experience Answer: C Diff: 2 Type: MC Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Recall

9) Jason is a stockbroker who is on variable compensation. In good years he receives a healthy bonus that might triple his base salary. During these times he is accustomed to a lavish lifestyle, driving expensive cars and taking exotic vacations. He knows it is important to save for retirement but he makes RRSP contributions only in years in which he receives good bonus cheques. In poor years he will receive only a base salary. During these poor years he finds himself scrambling to pay off debts and meet monthly expenses. He always seems to have more unexpected expenses during these times, too. He always has at least $1000 cash in his wallet and tries to avoid the use of credit cards as much as possible. Jason is funding all short-term goals with current earnings and hasn't set any mid- or long-term goals. He is frustrated by his wildly fluctuating income and his constant concern about his potential earnings at the beginning of each year. How can you assist Jason? Answer: First, Jason needs to set realistic short-, medium-, and long-term goals. Then Jason needs to create a personal cash flow statement, budget, balance sheet, and net worth statements as well as a complete review of spending habits to establish an emergency fund. In his circumstances, he needs a much larger emergency fund than many people because his income varies significantly. One positive is that he has not abused credit and has some RRSP savings so he is not beyond redemption. People in this stage of life have huge potential but it will take some sacrifices to live within a budget. He needs to control consumption and change personal habits drastically. Establishing order in his life with a budget and setting future goals may be a welcome change. For starters, the cash must stay out of his wallet and he should control and record his expenses with the use of a debit card. Once enough information has been gathered, he needs to make some decisions about spending patterns and implement a cash outflow tailored to essential expenses. To adhere to the budget, initially it should include a liberal entertainment expenses that can be altered over time to condition him to a new and disciplined lifestyle. The budget should be sufficient to cover all of the expected expenses incurred during his lower-earning years. Diff: 3 Type: ES Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Applied

10) Describe why some people may need alternative budget strategies? Give an example to illustrate why someone might need the envelope method while someone else needs the pay yourself first method. Answer: If someone has good intentions but is still unable to anticipate cash shortages or is unable to consistently apply the budget method, then he or she may need alternative budgeting strategies. Envelope method: To force you to stick to a cash-only budget for some of your expense categories. Putting $100 cash in an envelope labelled "Entertainment" to set a maximum of $100 spending on entertainment is an example. If someone is extremely impulsive and for example cannot resist buying the great sale deals on their credit card, they may need to get rid of the card and use the envelope method. Pay yourself first method: To control the amount of money going out of your bank account after each pay cheque comes in. For instance, you transfer $200 from your chequing account to your savings account after the direct deposit of salary to stop yourself from spending $200 in your chequing account. For many people this method ensures that the critical savings get done first, while all other expenses are clearly documented on the credit card or bank statement to track monthly cash flow. Diff: 2 Type: ES Categories: Factors That Affect Cash Flows Financial Type: Qualitative Skill Type: Applied Creating a Budget 1) One advantage of budgeting several months in advance is that you will be warned of potential deficiencies and can determine how to cover them. Answer: TRUE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 2) One of the problems in making a monthly budget is that some expenses fluctuate quite a bit from month to month. Answer: TRUE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Applied

3) Getting financial help from family and friends should be your first option in case of emergencies. Answer: FALSE Diff: 2 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Applied 4) In order to have a successful budget experience, you must use both the envelope and the pay yourself first methods. Answer: FALSE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 5) Budgeting is the forecasting of future income, expenses, and savings. Answer: TRUE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 6) It is possible to budget for irregular expenses paid infrequently. Answer: TRUE Diff: 2 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 7) You can meet your cash needs using a line of credit. Answer: TRUE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 8) With a biweekly pay period, you will have 26 pay periods during the year. Answer: TRUE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall

9) The pay yourself first method removes cash flows from your account at the end of the budget period. Answer: FALSE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 10) The envelope method is a type of cash-only budgeting method. Answer: TRUE Diff: 1 Type: TF Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 11) If you do not budget for unexpected expenses, you will likely experience A) cash shortages. B) an increase in your emergency fund. C) an increase in assets. D) chronic stress-related issues. Answer: A Diff: 1 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 12) What is a practical way to make sure you stay within your budget and achieve your savings goals? A) Use the pay yourself first method. B) Use a credit card for all expenses. C) Reduce your spending. D) Get a second job. Answer: A Diff: 2 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall

13) A budget is A) the same thing as a cash flow statement. B) a method to measure net worth and monitor wealth. C) an historical record of income and expenses. D) a forecast of all items on the cash flow statement. Answer: D Diff: 1 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 14) Which of the following is the worst approach to solving the problem of an annual budget deficit? A) Liquidate enough savings or investments to make up the deficit. B) Get an additional credit card and cover the deficit with that. C) Renegotiate debt to longer term, lower interest options. D) Increase income by getting an additional part-time job. Answer: B Diff: 3 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Applied 15) If your budget forecasts a future shortfall in cash flow, the best way to use your budget is to A) eliminate all entertainment expenses for that period. B) build an emergency fund to prepare for the shortfall. C) increase cash flows from all sources. D) obtain credit in advance of the predicted shortfall. Answer: B Diff: 3 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 16) Which is an example of a possible unanticipated cash flow shortage? A) Your car gets damaged in an accident. B) Your annual life insurance payment comes due. C) Your property tax bill is overdue. D) Your car loan payment falls due. Answer: A Diff: 1 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Applied

17) A major part of the budgeting process to ensure overall financial success is A) reducing credit limits on credit cards. B) limiting entertainment expenses. C) establishing an emergency fund. D) planning an overdraft for your chequing account. Answer: C Diff: 2 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 18) If your net worth is not improving over time, you can use your budget to A) make yourself take a more disciplined approach. B) add part-time income you had not previously included in your budget. C) identify the components in the budget you can change. D) improve your rate of return on investments by raising the risk level. Answer: C Diff: 3 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Applied 19) Ben's salary is $3000 per month, taxes are $500, fixed expenses are $1500 and savings are $500. His disposable income is A) $1000. B) $3000. C) $2500. D) $500. Answer: C Diff: 2 Type: MC Categories: Creating a Budget Financial Type: Quantitative Skill Type: Applied 20) Ben's salary is $3000 per month, taxes are $500, fixed expenses are $1500 and savings are $500. His net cash flows are A) $1000. B) $3000. C) $2500. D) $500. Answer: A Diff: 2 Type: MC Categories: Creating a Budget Financial Type: Quantitative Skill Type: Applied

21) With respect to their forecasted income and expenses, individuals A) overestimate their expenses. B) tend to be overly optimistic. C) underestimate their income. D) tend to be overly pessimistic. Answer: B Diff: 1 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 22) A forecasting error occurs when A) your estimate of income taxes payable is incorrect. B) you receive more dividend income than you anticipated. C) your CPP contributions are greater than you expected. D) your actual income and/or expenses are different from your forecasted income and/or expenses. Answer: D Diff: 2 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 23) The expense categories you should target for the envelope method are A) your largest expense categories. B) new expense categories that you have not budgeted for in the past. C) the ones you find hardest to control. D) the ones recommended by your friends and family. Answer: C Diff: 2 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall

24) Which of the following budgeting steps are in the correct order? A) Set aside net cash flows in an emergency fund, create a budget, assess the accuracy of your budget, adjust any forecasted income/expense categories, consider ways to increase your net cash flows. B) Set aside net cash flows in an emergency fund, create a budget, adjust any forecasted income/expense categories, assess the accuracy of your budget, consider ways to increase your net cash flows. C) Create a budget, set aside net cash flows in an emergency fund, assess the accuracy of your budget, adjust any forecasted income/expense categories, consider ways to increase your net cash flows. D) Create a budget, set aside net cash flows in an emergency fund, assess the accuracy of your budget, consider ways to increase your net cash flows, adjust any forecasted income/expense categories. Answer: C Diff: 3 Type: MC Categories: Creating a Budget Financial Type: Qualitative Skill Type: Recall 25) George has a very low debt to asset ratio because he has paid off his mortgage on his house and has very little other debt. Recently, he quit his high-stress job and has taken a much more enjoyable lower-paying position. Consequently, he also now has a low liquidity ratio. He used up all of his emergency fund while looking for the new job and he is having difficulty continuing to save for his retirement. Comment on his situation and make suggestions to help him with his retirement budgeting. Answer: George is asset rich but cash flow poor due to his recent circumstances. His first course of action should be to do a new personal cash flow statement to identify areas where he can reduce expenses and adjust his behaviour to his new status in life. It may be necessary for him to re-evaluate his goals. Once satisfied he can comfortably adjust to his new goals he should prepare a new budget. First, he should emphasize the replacement of an emergency fund and then the funding of his retirement plan. A balance sheet would provide valuable information regarding his opportunities to borrow. George, in his current position, has fortunately demonstrated a healthy respect for debt and might consider borrowing money against his assets to put in his retirement fund if he still cannot budget for it out of his cash flow. Alternatively, George could consider selling assets to raise the cash required after he has considered exactly what changes he will make to his new lifestyle. Diff: 3 Type: ES Categories: Creating a Budget Financial Type: Qualitative Skill Type: Applied 14 Copyright © 2022 Pearson Canada Inc.

26) Marta has been keen on following her budget for some time, but unexpected expenses such as car repairs or broken appliances always seem to force her to cancel her vacation each year. Suggest what course of action Marta should follow. Answer: Marta has not likely budgeted for an emergency fund and this is the reason her plan is not working. She should re-do her personal cash flow statement, making sure that she has accounted for unusual and unexpected expenses and allocate funds to build her emergency fund to three times her monthly expenses. Since she has followed a budget in the past this should be an easier process as she goes through her records. Reassessing her goals may be necessary to ensure that there are enough funds to meet her vacation needs. During this process she should review opportunities to raise cash flow and areas where expenses can be reduced. Diff: 2 Type: ES Categories: Creating a Budget Financial Type: Qualitative Skill Type: Applied Personal Balance Sheet 1) A negative cash flow means net worth will decrease. Answer: TRUE Diff: 3 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Applied 2) Stocks are considered a short-term liquid investment. Answer: FALSE Diff: 2 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 3) Long-term liabilities are debts that will be paid off at least three years into the future. Answer: FALSE Diff: 1 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall

4) Your net worth can change even if your net cash flows are zero. Answer: TRUE Diff: 3 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Applied 5) If your net cash flow is $1000, the total value of your assets is $14 000, and your total debts are $4000, then your net worth is $11 000. Answer: FALSE Diff: 2 Type: TF Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 6) A net worth statement can be used to monitor the changes in your wealth over time. Answer: TRUE Diff: 2 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 7) Students with a negative net worth are essentially bankrupt. Answer: FALSE Diff: 2 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 8) Net worth always increases when you increase the value of your assets. Answer: FALSE Diff: 3 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Applied 9) Mutual funds are portfolio investments that require investors to make individual stock or bond investment decisions themselves. Answer: FALSE Diff: 1 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall

10) Household assets include jewelry and furniture and should be valued at their original cost. Answer: FALSE Diff: 2 Type: TF Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Applied 11) Raymond has a $5000 bank loan due in nine months, $3000 in credit card liabilities due in 1.5 months, and another $4000 loan due in 1.5 years. In this case, Raymond has total long-term liabilities of $4000. Answer: TRUE Diff: 2 Type: TF Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 12) This month Joshua has $2000 income from his job and $100 interest income. His expenses are rent $500, food and entertainment $400, car expenses $600. He has $40 000 held in bonds and a car loan of $10 000. What is his net worth? A) $30 000 B) $32 100 C) $30 600 D) $30 500 Answer: A Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 13) Which one of the following is a liquid asset? A) Money in a savings account B) A car C) Cash in an RRSP D) Stock held in an investment account Answer: A Diff: 1 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Applied

14) Which of the following would increase your liquid assets? A) Paying off a loan B) Depositing funds to a savings account C) Buying rental property D) Contributing to an RRSP Answer: B Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 15) Which of the following is not a liquid asset? A) Cash in your pocket B) Money in a savings account C) Access to your credit card D) Money in your chequing account Answer: C Diff: 1 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 16) Which of the following is not considered an asset for a family? A) Cash in a chequing account B) A home with an outstanding mortgage C) Access to a line of credit D) Furniture Answer: C Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 17) Property such as a person's home, car, and furniture is called A) personal assets. B) household assets. C) major property assets. D) long-term assets. Answer: B Diff: 1 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall

18) When a person owns corporate stocks, government or corporate bonds, or mutual funds, these are called A) liquid assets. B) long-term assets. C) investment assets. D) retirement assets. Answer: C Diff: 1 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 19) Which of the following is a true statement about mutual funds? A) You get to choose what stocks the mutual fund invests your money in. B) A minimum investment is required. C) They are only invested in stocks. D) The value of shares are not reported in The Globe and Mail or on various websites. Answer: B Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 20) Balance sheet assets should be valued at A) original purchase price. B) replacement value. C) insured value. D) fair market value. Answer: D Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 21) Bills that are to be paid off within a year are called A) short-term liabilities. B) one-year liabilities. C) current liabilities. D) insignificant bills. Answer: C Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall

22) Liabilities can be calculated by A) adding assets plus net worth. B) subtracting net worth from assets. C) adding assets plus income. D) subtracting expenses from assets. Answer: B Diff: 3 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Applied 23) Current liabilities include all of the following except A) this year's monthly car payments on a three-year loan. B) the total mortgage on a home. C) the amount due on a credit card. D) next month's payment on a student loan. Answer: B Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 24) Student loans, car loans, and mortgages are likely examples of A) long-term liabilities. B) current liabilities. C) short-term debts. D) household liabilities. Answer: A Diff: 1 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 25) A personal balance sheet summarizes A) income, expenses and net worth. B) cash inflows, outflows and net worth. C) assets, net worth, and income. D) assets, liabilities, and net worth. Answer: D Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall

26) Jennifer has assets of $100 000 and debts of $10 000. She could A) borrow more money, since her debt ratio is low. B) apply for a bank loan, but expect to be turned down. C) borrow approximately $200 000 at below-market rates. D) establish an emergency fund of $10 000 in order to qualify for a loan. Answer: A Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 27) Which of the following would increase your net worth (all else the same)? A) Your home increasing in value B) Getting a salary increase C) Selling your condo D) Paying down your mortgage with excess cash flow Answer: A Diff: 3 Type: MC Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 28) The current financial position of an individual or family is best presented with the use of a A) net worth statement. B) cash flow statement. C) balance sheet. D) bank statement. Answer: C Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 29) Paying off a credit card with savings will have what effect on net worth? A) Increase B) Decrease C) No effect D) Insufficient data Answer: C Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall

30) Credit cards are A) a good source of short term funds to be used in a period of negative cash flow. B) used to spend excessively by some because it avoids using up available cash. C) a great way to discipline yourself to delay gratification to the future. D) an interest free source of credit as long as the balanced is paid of every other month. Answer: B Diff: 2 Type: MC Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 31) Over time, the balance sheet will show that your budgeting process is successful if A) there is a constant positive cash flow. B) you have controlled all spending habits. C) your budget is continually accurate. D) your net worth increases each year. Answer: D Diff: 3 Type: MC Categories: Personal Balance Sheet Financial Type: Qualitative Skill Type: Recall 32) Last year John purchased a car for $45 000, a desktop computer for $4000, and a camera for $2500. At present, John has $1000 in credit card debt and a $1800 bank loan. With reasonable estimate of market values, John's car is worth $40 000, computer is worth $2000, and camera is worth $3000. What is John's net worth today? A) $37 200 B) $48 700 C) $42 200 D) $39 200 Answer: C Diff: 3 Type: MC Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 33) If you sell stock from your portfolio to pay off your car loan, your debt ratio of 0.5 will A) improve (increase). B) improve (decrease). C) remain unchanged. D) decrease (unfavourably). Answer: B Diff: 3 Type: MC Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied 22 Copyright © 2022 Pearson Canada Inc.

34) Use an example with numbers to illustrate how someone's net worth could increase over a year while their cash flow was negative. Answer: There are many possibilities, here is one illustration. The balance sheet includes assets, liabilities, and net worth. With assets growing in value by 2% and the liability is being systematically paid down, the overall net worth could increase even if cash flow is negative for a year and for example there is a $5000 credit card debt at the end of the year. If the balance sheet beginning of year has assets that are growing by 2% such as: Investments: 200 000 after a year 204 000 House: 600 000 after a year 612 000 Liability: Mortgage: Credit card Net worth:

300 000 (assume pay $1000 a month principal) 0 500 000

288 000 5000 523 000

The income statement includes income and expenses Salary 50 000 Taxes 10 000 Expenses 45 000 Cash flow - 5000 over the year and could be a balance on a credit card or line of credit. Diff: 3 Type: ES Categories: Personal Balance Sheet Financial Type: Quantitative Skill Type: Applied Financial Ratio Calculations 1) A high debt-to-asset ratio indicates an excessive amount of debt and should be reduced over time to avoid any debt repayment problems. Answer: TRUE Diff: 2 Type: TF Categories: Financial Ratio Calculations Financial Type: Qualitative Skill Type: Recall 2) Paying $2000 to reduce your car loan to $5000 would increase your debt-to-asset ratio (all else being equal). Answer: FALSE Diff: 1 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 23 Copyright © 2022 Pearson Canada Inc.

3) Someone with a monthly income of $5000, $5000 in their chequing account and monthly expenses of $5000 would have a Liquidity Ratio of 2. Answer: FALSE Diff: 2 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 4) A debt-to-asset ratio above 1 is more important than a liquidity ratio above 1. Answer: FALSE Diff: 2 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 5) If JT's gross income is $50 000, disposable income is $36 000, and he saves $5000 annually, his savings ratio is 10%. Answer: FALSE Diff: 2 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 6) Assets valued at $400 000 with liabilities of $300 000 means a liquidity ratio of 3 to 1. Answer: FALSE Diff: 3 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 7) Assets valued at $400 000 with liabilities of $300 000 means a debt-to-asset ratio of 0.75. Answer: TRUE Diff: 3 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 8) A liquidity ratio between 1 and 2 is ideal. Answer: FALSE Diff: 2 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied

9) A high debt-to-asset level is common during the early- to mid-earning life stages. Answer: TRUE Diff: 2 Type: TF Categories: Financial Ratio Calculations Financial Type: Qualitative Skill Type: Recall 10) If you feel your debt-to-asset ratio is low, you should review your cash flows to maximize your income and minimize expenses. Answer: FALSE Diff: 3 Type: TF Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 11) What tends to be the case for the retirement life stage? A) Lower debt levels than in early-earning and mid-earning life stages B) Managing expenses for new hobbies becomes challenging. C) Managing RRSP investments becomes paramount. D) Increase in taxes due to income on retirement funds Answer: A Diff: 2 Type: MC Categories: Financial Ratio Calculations Financial Type: Qualitative Skill Type: Recall 12) Which of the following individuals has the best debt-to-asset ratio? A) John has total assets of $600 000 and total debt of . B) Fred has total assets of $36 000 and total debt of . C) Maria has a monthly gross income of $8000 and expenses of $6000. D) Cassandra has a gross monthly income of $2000 and expenses of $1200. Answer: B Diff: 2 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 13) Which of the following actions will decrease your net worth? A) Fitness club dues paid monthly B) Contributions to a mutual fund paid monthly C) Student loan payments paid monthly D) Home mortgage payments paid monthly Answer: A Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Qualitative Skill Type: Applied 25 Copyright © 2022 Pearson Canada Inc.

14) Nancy has a gross income of $47 000, disposable income of $40 000, a net worth of $80 000 and saves $8000 a year. Her savings rate is A) 10 percent. B) 15 percent. C) 17 percent. D) 20 percent. Answer: D Diff: 2 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 15) If Jo Ann had $4000 in liquid assets and $1000 in current liabilities, she would have a current ratio of A) 0.25. B) 4.0. C) 1000. D) 4000. Answer: B Diff: 2 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 16) A low liquidity ratio means that A) you have very few debts. B) you will not likely have trouble paying your monthly bills. C) you probably will have trouble paying your monthly bills. D) you have many liquid assets. Answer: C Diff: 2 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 17) If your debt-to-asset ratio is less than 1, which of the following will improve it? A) Taking out a line of credit B) Buying a car with cash C) Paying off a student loan D) Buying stock with cash Answer: C Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 26 Copyright © 2022 Pearson Canada Inc.

18) George has total debts of $10 000, liquid assets of $8000 and current liabilities of $5000. His current ratio is A) 0.8. B) 0.63. C) 6.3. D) 1.6. Answer: D Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 19) Paradis has total assets of $360 000, current assets of $35 000, current liabilities of $22 000, and total liabilities of $195 000. His debt-to-asset ratio is A) 1.59. B) 0.63. C) .54. D) 1.85. Answer: C Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 20) Should Shane be concerned about his liquidity ratio of 80 percent? A) No, he is in good position regarding liquidity. B) No, this indicates a healthy cash flow. C) Yes, he may have problems covering upcoming payments. D) Yes, he may decrease his net worth with too many investments. Answer: C Diff: 2 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 21) Kim has a net worth of -$20 000 and a debt-to-asset ratio of three. Which of the following do you know is true? A) Kim has a major liquidity problem. B) Kim is on the verge of bankruptcy. C) Kim has assets of $10 000. D) Kim has liabilities of $20 000. Answer: C Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 27 Copyright © 2022 Pearson Canada Inc.

22) Jerry has assets of $200 000, net worth of $150 000, gross income of $60 000 and disposable income of $50 000. What are Jerry's liabilities? A) $110 000 B) $50 000 C) $100 000 D) $0 Answer: B Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 23) Raymond feels that he is wealthy because he has $10 000 cash in the bank, two expensive cars worth about $100 000, and a house worth $1 million. However, he also carries a $25 000 credit card liability and has a $40 000 bank loan due within six months. What financial problem does Raymond have? A) Fixed assets are too high. B) Total net worth is too low. C) Current ratio is too low. D) Liquidity ratio is too low. Answer: C Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 24) Mary earns $3500 per month. After payroll deductions from the government, Mary takes home 85 percent of her salary. Mary wants to use a pay yourself first method and puts $330 into her savings account before spending anything and pays $200 towards her student loans. What is Mary's saving rate? A) 9.4 percent B) 11.1 percent C) 15.1 percent D) 17.8 percent Answer: B Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied

25) Robert feels his personal finance is not so healthy in terms of managing debt. He has a $12 000 credit card liability, a $10 000 car loan, and a $300 000 mortgage liability. Robert possesses a car worth $12 000 and a house worth $388 000. What is Robert's debt-to-asset ratio? A) 80.5 percent B) 77.3 percent C) 83.3 percent D) Insufficient information to calculate Answer: A Diff: 3 Type: MC Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied 26) Use an example with numbers to illustrate financial ratios are important when considering someone's balance sheet. Answer: There are unlimited what to illustrate this but a simple way is to illustrate two balance sheets with the same net worth, but drastically different ratios and the risks that implies. The balance sheet includes assets, liabilities, and net worth. Bill: Assets: House: Investments: Total assets:

Sarah: 2 100 000 0 2 100 000

Liabilities: Line of credit: Mortgage: Credit card Total liabilities:

75 000 1 900 000 25 000 2 000 000

Condo: TFSA:

170 000 30 000 200 000 0 100 000 0 100 000

Net worth: 100 000 Debt-to -asset ratio .95 Current ratio: 0/25 000 = 0

100 000 .5 30 000/2000?

These financial ratios tell a big story of one person in a very stable financial situation and one with a house of cards. Diff: 3 Type: ES Categories: Financial Ratio Calculations Financial Type: Quantitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 4 - Using Tax Concepts for Planning Background on Taxes 1) Knowledge of individual income taxes is somewhat relevant to financial planning. Answer: FALSE Diff: 1 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Applied 2) Income from outside of Canada is not subject to Canadian income tax. Answer: FALSE Diff: 3 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 3) There is a required repayment of certain social benefit payments if your net income is above a certain level. Answer: TRUE Diff: 2 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 4) Provincial governments collect property taxes. Answer: FALSE Diff: 2 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Applied 5) Students should not file income tax returns if their income is below the basic personal amount. Answer: FALSE Diff: 3 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Applied 6) Income earned off-reserve by First Nations and non-First Nations is taxable. Answer: TRUE Diff: 1 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 1 Copyright © 2022 Pearson Canada Inc.

7) The purpose of the tax exemption available to qualifying individuals under section 87 of the Indian Act is to provide economic benefits. Answer: FALSE Diff: 1 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 8) Many First Nations governments have enacted laws that impose property tax, sales tax, and income tax. Answer: TRUE Diff: 1 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 9) The employer will use a T4 slip to calculate the amount of taxes to withhold from your paycheque. Answer: FALSE Diff: 1 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 10) The more personal tax credits you qualify for, the more income tax deducted from your paycheque. Answer: FALSE Diff: 1 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 11) GST, PST, FNGST, and excise taxes are all examples of consumption taxes. Answer: TRUE Diff: 1 Type: TF Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall

12) Canada's taxation rules are called "progressive." This means A) taxes are deducted from your income and withheld at the source. B) that Canada's tax system supports progressive social programs. C) the higher your income, the higher your tax rate. D) government benefits are clawed back when someone's income exceeds a certain threshold. Answer: C Diff: 3 Type: MC Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 13) The Federal Government's use of net income versus taxable income ensures A) a progressive tax system. B) lower income individuals benefit the most. C) single parents benefit more. D) all taxpayers are treated equitably. Answer: D Diff: 2 Type: MC Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 14) Meg makes RRSP contributions resulting in a tax rebate of $1200 each year. She is in a 30 percent tax bracket. What was the amount of her contribution? A) $3000 B) $4000 C) $22 222 D) Unknown Answer: B Diff: 2 Type: MC Categories: Background on Taxes Financial Type: Quantitative Skill Type: Applied 15) Fillipe is in the forty percent marginal tax bracket and has a variety of income sources. Which of the following will he owe the least tax for? A) $1000 interest income B) $1000 dividend income C) $1000 award from his company D) $2000 capital gain Answer: B Diff: 2 Type: MC Categories: Background on Taxes Financial Type: Quantitative Skill Type: Applied

16) Samantha filed her tax return on August 1st and paid her $4000 balance owing. If the prescribed interest rate is 5%, how much did she owe in total? A) $4050 B) $4320 C) $4000 D) $4370 Answer: D Diff: 3 Type: MC Categories: Do You Have to File a Return? Financial Type: Quantitative Skill Type: Applied 17) In which general category of tax should a homeowner earning over $250 000 in salary per year be expected to pay the most? A) Personal income tax B) Consumer tax (GST/HST) C) Property tax D) Excise tax Answer: A Diff: 3 Type: MC Categories: Background on Taxes Financial Type: Qualitative Skill Type: Applied 18) A tax exemption under section 87 of the Indian Act applies to qualifying individuals in all of the following circumstances, except to those who A) earn income off-reserve. B) have income that is considered to have been earned on a reserve. C) buy goods on a reserve. D) have goods delivered to a reserve. Answer: A Diff: 2 Type: MC Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 19) The CRA collects taxes on behalf of all provinces except A) Saskatchewan. B) Ontario. C) Quebec. D) Newfoundland. Answer: C Diff: 1 Type: MC Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 4 Copyright © 2022 Pearson Canada Inc.

20) With respect to income taxation, the role of the Federal Government is to A) distribute and collect tax forms and publications. B) collect taxes for First Nations governments. C) impose municipal taxes at the local level. D) draft and revise the Income Tax Act. Answer: D Diff: 1 Type: MC Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 21) The mill rate is a special tax rate used to assess the amount of tax payable on A) property income. B) personal income. C) dividend income. D) mill rate income. Answer: A Diff: 2 Type: MC Categories: Background on Taxes Financial Type: Qualitative Skill Type: Recall 22) Which of the following assets is a capital asset? A) Furniture in a furniture store B) Car owned for personal use C) Vineyard that produces grapes D) Your textbook for this course Answer: C Diff: 2 Type: MC Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall Do You Have to File a Return? 1) You have to file a personal tax return by April 30 each year only if the Canada Revenue Agency sent you a request to file. Answer: FALSE Diff: 2 Type: TF Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall

2) Self-employed taxpayers must have paid all taxes owing by April 30th of the following year. Answer: TRUE Diff: 2 Type: TF Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Applied 3) Every individual that earns employment income is required to file a personal income tax return. Answer: FALSE Diff: 1 Type: TF Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall 4) You can file your return by either mailing a hard copy prior to the April 30th deadline, netfiling, or efiling. Answer: FALSE Diff: 2 Type: TF Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall 5) By what date must self-employed individuals file their income tax returns? A) December 31 B) April 30 C) June 15 D) 90 days after their fiscal year-end Answer: C Diff: 1 Type: MC Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall 6) Even if you haven't paid any tax during the year (i.e. through withholdings or directly), it is beneficial to file a tax return because A) you can carry forward all non-refundable tax credits to future years. B) you can get a tax refund for your RRSP contributions. C) you may be eligible for a tax-free refundable GST/HST credit. D) it is required by law, if you are over 18. Answer: C Diff: 2 Type: MC Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall

7) Under which of the following conditions must you file a personal income tax return? A) You acquired capital property during the calendar year. B) You have to contribute to the Canada Pension Plan. C) You will receive an income tax refund. D) You got married, separated, or divorced during the calendar year. Answer: B Diff: 2 Type: MC Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall 8) Under which of the following conditions must you file a personal income tax return? A) You want to carry back to previous years the unused investment tax credit on expenses you incurred during the current year. B) You repaid all the amounts you withdrew from your registered retirement savings plan (RRSP) under the Home Buyers' Plan (HBP). C) You want to claim the Canada Workers Benefit (CWB). D) You want to collect old age security (OAS) or employment insurance (EI) benefits. Answer: C Diff: 3 Type: MC Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall 9) Among other things, your Notice of Assessment includes a box outlining your RRSP contribution limits for A) the previous year. B) the current year. C) your entire career. D) the following year. Answer: D Diff: 2 Type: MC Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall 10) Pawan, who is self-employed, filed his tax return on November 1st and paid his $2500 balance owing. If the prescribed interest rate is 3%, how much did he owe in total? A) $2080 B) $2813 C) $2775 D) $2670 Answer: B Diff: 3 Type: MC Categories: Do You Have to File a Return? Financial Type: Quantitative Skill Type: Applied 7 Copyright © 2022 Pearson Canada Inc.

11) Which of the following students should not file a tax return? A) Omar, a full-time student, has no tax payable for the year and he would like to carry forward his tuition tax credit. B) Aubrey made less than the basic personal amount, but her employer deducted $1000 for income tax from her pay during the year. C) Madeline has to pay interest on a student loan that she received from her parents. She has no income for the year. D) Rahul made $3000 during the year. Answer: C Diff: 3 Type: MC Categories: Do You Have to File a Return? Financial Type: Qualitative Skill Type: Recall Overview: Completing an Income Tax Return 1) Canada's tax system is called "progressive," which means the higher someone's income, the higher the percentage of income paid in taxes. Answer: TRUE Diff: 2 Type: TF Categories: Completing a Tax Return Financial Type: Qualitative Skill Type: Recall 2) The amount of federal tax you owe is calculated using Form 428. Answer: FALSE Diff: 1 Type: TF Categories: Completing a Tax Return Financial Type: Qualitative Skill Type: Recall 3) Total income minus all deductions equals taxable income. Answer: TRUE Diff: 1 Type: TF Categories: Completing a Tax Return Financial Type: Qualitative Skill Type: Recall

4) You have a salary of $30 000, an RPP deduction of $2000, paid $1000 interest on your mortgage and paid union dues of $800. If the basic personal amount is $11 635 and the federal tax rate is 15 percent, what federal tax do you owe? A) $4200 B) $2259 C) $2829 D) $2335 Answer: D Diff: 3 Type: MC Categories: Completing a Tax Return Financial Type: Quantitative Skill Type: Applied 5) When taxable income on a progressive basis exceeds certain thresholds, A) a higher rate of tax is charged on all income. B) tax credits become more important. C) deductions reach a maximum allowable amount. D) the tax rate is increased on the next dollars of income until a new income level is reached. Answer: D Diff: 3 Type: MC Categories: Completing a Tax Return Financial Type: Qualitative Skill Type: Applied 6) Which of the following best summarizes the correct process? A) Calculate total income, subtract tax credits and deductions, determine refund or balance owing. B) Add all deductions and subtract the credits from total income, determine refund or balance owing. C) Calculate total income, deduct RRSP contribution, apply tax credits and deductions, determine refund or balance owing. D) Calculate total income, subtract deductions, calculate taxable income, apply tax credits, determine refund or balance owing. Answer: D Diff: 3 Type: MC Categories: Completing a Tax Return Financial Type: Qualitative Skill Type: Applied

7) If George is 65 and in a combined marginal tax bracket of 42 percent, then A) he can save $840 on his taxes if he applies his son's $2000 of tuition amount. B) he can save $840 on his taxes from his $2000 RRSP contribution. C) he can save $840 on his taxes from his $2000 medical expenses. D) All of the above are correct. Answer: B Diff: 3 Type: MC Categories: Completing a Tax Return Financial Type: Quantitative Skill Type: Applied 8) The T4 slip provided by your employer shows all your A) income earned and tax deducted for the year. B) income, professional dues, and taxes for the year. C) income earned and deductions for the year. D) income and deductions made by that employer for the year. Answer: D Diff: 2 Type: MC Categories: Completing a Tax Return Financial Type: Qualitative Skill Type: Recall 9) List your total income, deductions, taxable income, number of deductions, and tax credits to arrive at taxable income and taxes payable. Make up an example if you don't want to supply your own figures. Explain the overall process. Answer: Total income includes all sources of taxable income (salary, investment income, capital gains (or losses) on capital assets you have sold, but not inheritances and bursaries etc.) Then you subtract deductions, such as RRSP contributions to get taxable income. Basic personal amounts and refundable and non-refundable tax credits are used to calculate total taxes owing. You may have over or underpaid your taxes via monthly or quarterly remittances and that will determine whether you get a refund, or owe taxes before the April 30 deadline. You may have been able to transfer credits to a relative or use some of their unused tax credits that are refundable to you. Diff: 3 Type: ES Categories: Completing a Tax Return Financial Type: Qualitative Skill Type: Applied

Step 1: Identification and Other Information 1) On page 1 of the Income Tax and Benefit Return, you will provide information about you, your spouse or common-law partner, and your kids. Answer: FALSE Diff: 1 Type: TF Categories: Identification and Other Information Financial Type: Qualitative Skill Type: Recall 2) If you do not complete the Elections Canada box on page 2, you will not be able to vote in the next federal election. Answer: FALSE Diff: 1 Type: TF Categories: Identification and Other Information Financial Type: Qualitative Skill Type: Recall Step 2: Calculate Total Income 1) All interest and dividends received by an individual taxpayer (outside of an RRSP or TFSA) are taxable. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall 2) A capital gain results from profit on the sale of capital assets. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall 3) Interest income is reported on a T5 Statement. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall

4) Interest income is only taxable in the year it was received. Answer: FALSE Diff: 1 Type: TF Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall 5) A capital loss represents the amount you can deduct from taxable capital gains. Answer: FALSE Diff: 1 Type: TF Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall 6) Fred's income this past year included salary of $70 000, $3000 in interest income, a $4000 capital gain from selling some stock and a $5000 inheritance. For tax purposes, what is his total income this year? A) $80 000 B) $82 000 C) $75 000 D) $77 000 Answer: C Diff: 3 Type: MC Categories: Calculate Total Income Financial Type: Quantitative Skill Type: Applied 7) Interest income would come from earnings on A) stocks. B) term deposits. C) RESPs. D) the sale of mutual funds. Answer: B Diff: 1 Type: MC Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall

8) Income earned from the sale of an asset for more than you paid for it is classified as A) dividend income. B) business income. C) a capital gain. D) a windfall. Answer: C Diff: 1 Type: MC Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall 9) If a stock was purchased in January 2004 for $1000 and sold in December 2005 for $3000, what is the taxable result? A) Taxable capital gain of $2000 B) Taxable capital gain of $1000 C) Income of $2000 D) Annual taxable gain of $500 Answer: B Diff: 2 Type: MC Categories: Calculate Total Income Financial Type: Quantitative Skill Type: Applied 10) If a stock was purchased for $3000 in January 2003 and is sold in June 2003 for $4000, what is the taxable result? A) Capital gain of $1000 and taxable income of $500 B) Business income of $1000 and taxable amount of $1000 C) Capital gain of $1000 and taxable income of $1000 D) Taxable capital gain of $1000 Answer: A Diff: 2 Type: MC Categories: Calculate Total Income Financial Type: Quantitative Skill Type: Applied 11) Which of the following is a condition for being considered self-employed? A) You have some limited control over the work you do. B) Your job duties are dependent on only two employers. C) You have taken on the financial risk and reward that comes with being self-employed. D) One of your contractors repairs your equipment for you. Answer: C Diff: 2 Type: MC Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall

12) Dividend income would come from earnings on A) stocks. B) term deposits. C) RESPs. D) guaranteed investment certificates (GICs). Answer: A Diff: 1 Type: MC Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall 13) The dividend gross-up and dividend tax credit for large public corporations is greater than they are for Canadian-controlled private corporations (CCPCs) because A) a CCPC shareholder receives an enhanced dividend tax credit. B) CCPCs are eligible for a small business deduction. C) corporate income taxes in Canada are lower for large public corporations than for CCPCs. D) dividends paid by a CCPC are referred to as non-eligible dividends. Answer: B Diff: 3 Type: MC Categories: Calculate Total Income Financial Type: Qualitative Skill Type: Recall Step 3: Calculate Net Income 1) If Jack has total RPP and RRSP contributions of $9000, he can deduct that amount from his total income to calculate his taxable income. Answer: TRUE Diff: 3 Type: TF Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Applied 2) Union dues and spousal support payments can be deducted in the calculation of taxable income. Answer: TRUE Diff: 1 Type: TF Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 3) Interest expense paid on home loans and car loans is deductible from your income tax. Answer: FALSE Diff: 1 Type: TF Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 14 Copyright © 2022 Pearson Canada Inc.

4) RRSP rules limit a taxpayer's contributions to the higher of 18 percent of total income to a maximum amount of $25 000. Answer: FALSE Diff: 2 Type: TF Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 5) The T4 slip provided by your employer shows all your earnings and deductions for the year. Answer: FALSE Diff: 3 Type: TF Categories: Tax Deductions Financial Type: Qualitative Skill Type: Applied 6) The Canada Eduction Savings Grant is taxable to the beneficiary when paid from a Registered Education Savings Plan (RESP). Answer: TRUE Diff: 1 Type: TF Categories: Tax Deductions Financial Type: Qualitative Skill Type: Recall 7) A deduction represents an item that can be deducted from total income to determine taxable income. Answer: TRUE Diff: 1 Type: TF Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 8) Generally, the higher income spouse or common-law partner can claim child care expenses. Answer: FALSE Diff: 1 Type: TF Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 9) Safety deposit box fees are tax deductible. Answer: FALSE Diff: 1 Type: TF Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall

10) Jerome is recently divorced and has two children that live with his ex-wife. What deductions should Jerome claim on his tax return? A) Child support payments B) Spousal support payments C) Caregiver deduction D) Child care expenses Answer: B Diff: 2 Type: MC Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 11) For qualified individuals, a contribution to a registered retirement savings plan (RRSP) will be A) a tax credit. B) a deduction from total income. C) eligible to be transferred to a spouse D) a deduction from federal tax payable. Answer: B Diff: 2 Type: MC Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 12) Which of the following is not typically a legitimate tax deduction in Canada? A) Mortgage interest on your home B) Union dues C) RRSP contributions D) The cost of some investment advice Answer: A Diff: 2 Type: MC Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall 13) Your earnings for last year were $42 000. How much of an RRSP contribution can you make this year (if you have no other RRSP contribution room)? A) $5670 B) $4200 C) $7560 D) Insufficient information Answer: C Diff: 2 Type: MC Categories: Subtract Deductions Financial Type: Quantitative Skill Type: Applied 16 Copyright © 2022 Pearson Canada Inc.

14) Your earnings in 2020 were $120 000, which is the 40 percent marginal tax bracket and 30 percent average tax bracket, in your province. How much would your taxes be reduced if you made the full RRSP contribution for this year (and had no additional RRSP room)? A) $7803 B) $10 404 C) $26 010 D) $12 000 Answer: B Diff: 3 Type: MC Categories: Subtract Deductions Financial Type: Quantitative Skill Type: Applied 15) Melanie, a homeowner, has mortgage interest of $3000, RRSP contributions of $1500, and charitable contributions of $500. According to her filing status, a basic personal amount of $12 298 is allowed. How much should Melanie deduct on her tax return? A) Her only deduction is the $1500 RRSP contribution. B) She can deduct $13 798, her basic personal amount and her RRSP contribution. C) She can deduct $14 298, her basic personal amount, charitable donation and her RRSP contribution. D) She has deductions of $2000 for her RRSP and charitable donation. Answer: A Diff: 3 Type: MC Categories: Subtract Deductions Financial Type: Quantitative Skill Type: Applied 16) Sally's total income is $38 000 and she divorced last year. She does not own a home, but has charitable contributions of $1500 and total interest paid on her car payments of $2100. This year she also paid spousal support of $2000, child support of $5000, and tuition of $2600. Her basic personal amount is $12 298. What is Sally's taxable income? A) $34 500 B) $31 900 C) $36 000 D) $20 762 Answer: C Diff: 3 Type: MC Categories: Subtract Deductions Financial Type: Quantitative Skill Type: Applied

17) If you are working as a Certified Financial Planner and you pay $500 to your association every year for membership, you can deduct $500 on your personal tax return as A) union/professional dues as long as you receive a tax receipt. B) an eligible tax credit as long as you do not get reimbursed for the amount. C) an employment expense as long as you receive a tax receipt. D) union/professional dues as long as you do not get reimbursed for the amount. Answer: D Diff: 2 Type: MC Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Applied 18) Ralph has total income of $53 000. He has business expenses of , made a $5000 RRSP contribution and incurred $4000 in tuition expenses for his daughter, who did not work and is a freshman at a local community college. He has a basic personal basic amount of $12 298 and his marginal tax rate is 26%. Compute Ralph's taxable income for the current year. A) $18 862 B) $26 000 C) $30 000 D) $14 862 Answer: C Diff: 3 Type: MC Categories: Subtract Deductions Financial Type: Quantitative Skill Type: Applied 19) Which of the following statements is the most accurate statement with respect to the tax deductibility of spousal support and child support? A) Both spousal support and child support payments are tax deductible. B) Spousal support payments are tax deductible; child support payments are tax deductible if the payments are being made with respect to a court order or written agreement established on or after May 1, 1997. C) Both spousal support and child support payments are tax deductible if the payments are being made with respect to a court order or written agreement established before May 1, 1997. D) Spousal support payments are tax deductible; child support payments are tax deductible if the payments are being made with respect to a court order or written agreement established before May 1, 1997. Answer: D Diff: 2 Type: MC Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall

20) Moving expenses paid by the taxpayer for the purpose of starting a new job or to attend university, college, or another educational institution as a full-time student are tax deductible, as long as the taxpayer is moving at least ________ kilometres closer to the job or institution. A) 20 B) 40 C) 60 D) 80 Answer: B Diff: 1 Type: MC Categories: Subtract Deductions Financial Type: Qualitative Skill Type: Recall Step 4: Calculate Taxable Income 1) For tax purposes, net income serves a different purpose than taxable income. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Taxable Income Financial Type: Qualitative Skill Type: Recall 2) Which of the following income is taxed at the lowest rate? A) Salary B) Interest C) Capital gains D) Tips Answer: C Diff: 2 Type: MC Categories: Calculate Taxable Income Financial Type: Qualitative Skill Type: Recall 3) Which of the following is not taxable income? A) EI payments B) Life insurance benefits C) Rental income D) The use of a company car Answer: B Diff: 2 Type: MC Categories: Calculate Taxable Income Financial Type: Qualitative Skill Type: Recall

4) Which of the following equations best describes the calculation for taxable income? A) Net Income - (Total Income × Deductions) =Taxable Income B) Net Income - Deductions = Taxable Income C) Total Income - Deductions = Taxable Income D) Total Income - (Net Income × Deductions) = Taxable Income Answer: B Diff: 2 Type: MC Categories: Calculate Taxable Income Financial Type: Qualitative Skill Type: Recall Step 5: Calculate Federal Tax 1) A marginal tax rate represents the percentage of tax you pay on your next dollar of taxable income. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Net Federal Tax Payable Financial Type: Qualitative Skill Type: Recall 2) An average tax rate represents the amount of tax you pay as a percentage of your total taxable income. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Net Federal Tax Payable Financial Type: Qualitative Skill Type: Recall 3) Your average tax rate will always be ________ your marginal tax rate. A) higher than B) equal to or higher than C) equal to or lower than D) lower than Answer: C Diff: 3 Type: MC Categories: Calculate Net Federal Tax Payable Financial Type: Qualitative Skill Type: Applied

4) If Helen earns $115 000 taxable income in 2020, how much federal income tax does she have to pay according to the brackets and rates in the textbook. What is Helen's average tax rate for federal tax? Show your calculations. What is Helen's average tax rate using the combined rates in the textbook for your province? Show your calculations. Answer: = (48 535 × 15%) + (97 069 - 48 535) × 20.5% + (115 000 - 97 069) × 26% = 7280.25 + 9949.47 + 4662.06 = $21 891.78 Average federal tax rate for Helen = 21 891.78/115 000 = 19.04% This will vary by province. Example for Alberta: (48 535 × .25) + (48 534 × 30.5) + (17 931 × .36) = 12 133.75 + 14 802.87 + 6455.16 = 22 471.78/115 000 = 19.54 percent Diff: 3 Type: ES Categories: Calculate Net Federal Tax Payable Financial Type: Quantitative Skill Type: Applied Tax Credits 1) Tax credits benefit high-income individuals more than moderate earners. Answer: FALSE Diff: 3 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Applied 2) The Basic Personal Amount is a non-refundable tax credit that reduces ones taxes by $12 298 in 2020. Answer: FALSE Diff: 3 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Applied 3) Jessie is 65 and has taxable income of $66 000. She would have her age amount credit fully clawed back. Answer: FALSE Diff: 3 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Applied

4) The spousal/common law partner tax credit is available to those supporting a spouse who had earnings under $12 298 in 2020. Answer: TRUE Diff: 2 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Applied 5) The basic personal amount is a non-refundable tax credit that can reduce tax payable to zero for people with income under $12 000 in 2020. Answer: TRUE Diff: 2 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Applied 6) The maximum medical expenses credit cannot exceed three percent of total income. Answer: FALSE Diff: 2 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 7) Interest paid on a qualified student loan can be used to reduce tax owing through a tax credit. Answer: TRUE Diff: 1 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 8) Tuition, pension, and age amount credits can be transferred to your spouse if you have no tax to pay. Answer: TRUE Diff: 2 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 9) Tuition and charitable donations can be carried forward to reduce taxes in future years. Answer: TRUE Diff: 2 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall

10) If the amount of taxes you owe is zero, your non-refundable tax credits will generally be of no use to you. Answer: TRUE Diff: 1 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 11) Unused disability amount or disability amount supplement tax credits can be transferred to a spouse, parent, or grandparent. Answer: TRUE Diff: 1 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 12) The charitable contribution amount can be carried forward for a maximum of 10 years. Answer: FALSE Diff: 1 Type: TF Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 13) Tax credits are used to reduce tax A) when calculating total income. B) after total taxes payable are calculated. C) before you subtract all deductions. D) by deducting them from total income. Answer: B Diff: 3 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 14) If you are supporting a spouse who attended school and had $3000 in taxable income A) you can claim their tuition tax credit. B) all of their non-refundable tax credits can be used to reduce your tax. C) you are entitled to a caregiver tax credit. D) you can deduct their personal basic amount. Answer: A Diff: 3 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Applied

15) If you are a married taxpayer supporting a spouse who has less than $12 750 in taxable income, A) you must be the one to claim all tax credits. B) you are entitled to a spousal or common-law partner tax credit. C) you are entitled to a dependant partner tax deduction. D) your spouse will not be able to apply for the GST/HST refund. Answer: B Diff: 2 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 16) Which would reduce taxes the most for a high income earner (income over $100 000)? A) $4800 interest on a student loan B) $4800 RRSP contribution C) $4800 medical expenses D) These would have the same effect. Answer: B Diff: 3 Type: MC Categories: Tax Credits Financial Type: Quantitative Skill Type: Applied 17) Which of the following items is affected by the taxpayer's income level? A) The amounts deducted for employment expenses B) The amounts that can be deducted for charitable contributions C) The amount of clawback on social assistance payments D) Basic personal exemptions Answer: C Diff: 2 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 18) Which taxpayers among the following can deduct some of his or her medical expenses? A) Jane, who has an income of $40 000 and medical expenses of $1100 B) Claude, who has an income of $60 000 and medical expenses of $2100 C) Peter, who has an income of $65 000 and medical expenses of $2375 D) Paula, who has an income of $26 000 and medical expenses of $700 Answer: C Diff: 3 Type: MC Categories: Tax Credits Financial Type: Quantitative Skill Type: Applied

19) Roan is a student in Ontario who travelled to BC for his summer job. When in BC he worked in mining camps and his residence was over 40 km from his actual place of employment. He spent $2000 moving to BC and back to Ontario and earned $22 000. During the remaining eight months he went to school full time. Which of the following describes his tax situation best? A) He will be able to claim full tax credits for moving expenses, tuition, and the personal amount. B) He will be able to deduct half the $2000 moving expenses because he lived more than 40 km from his work, and can claim tax credits for tuition and the basic personal amount. C) He will be able to deduct $2000 for moving expenses and claim tax credits for tuition and the basic personal amount. D) He will not be able to deduct moving expenses as he lived more than 40 km from his work, but he can claim tax credits for tuition and the basic personal amount. Answer: C Diff: 3 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Applied 20) Robert is 66 and so qualifies for the age amount. His taxable income for 2020 was . The threshold income for the age amount is $38 508 and the maximum age amount is $7637. What age amount will he qualify for? A) $4285 B) $3663 C) $7225 D) Zero Answer: B Diff: 3 Type: MC Categories: Tax Credits Financial Type: Quantitative Skill Type: Applied 21) Which of the following is a non-refundable tax credit? A) GST/HST tax credit B) Canada Child Benefit C) Canada Workers Benefit D) Basic Personal Amount Answer: D Diff: 1 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall

22) Which of the following is a refundable tax credit? A) Age Amount B) Pension Income Amount C) Canada Child Benefit D) Canada Caregiver Credit Answer: C Diff: 1 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 23) You can claim interest on a student loan that was: A) taken from a personal loan or line of credit. B) made to you under the Canada Student Loans Act. C) received from another country with which Canada has a tax treaty. D) made to you by your parents only. Answer: B Diff: 1 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 24) Which of the following transferable tax credits can be transferred to immediate relatives other than your spouse? A) The tuition and disability amounts B) The age and pension income amounts C) The age and tuition amounts D) The disability and pension income amounts Answer: A Diff: 2 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall 25) Which of the following tax credits can be carried forward by the taxpayer to any future tax year? A) The medical expenses and tuition amounts B) The charitable contribution and tuition amounts C) The medical expenses and charitable contributions amounts D) The age and pension income amounts Answer: A Diff: 2 Type: MC Categories: Tax Credits Financial Type: Qualitative Skill Type: Recall

Step 6: Calculate Provincial or Territorial Tax 1) Provinces calculate their marginal tax rate as a percentage of net income. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Provincial or Territorial Tax Financial Type: Qualitative Skill Type: Recall 2) You would use Form 428 to calculate your net provincial tax payable. Answer: TRUE Diff: 1 Type: TF Categories: Calculate Provincial or Territorial Tax Financial Type: Qualitative Skill Type: Recall Step 7: Refund or Balance Owing 1) The combined Federal and Provincial tax rates vary a lot from province to province. Answer: TRUE Diff: 2 Type: TF Categories: Calculate Total Tax Payable Financial Type: Qualitative Skill Type: Applied 2) Jake invested $800 in an RRSP. If he is in the 30 percent marginal tax bracket, he will A) pay $800 less in taxes. B) pay $240 less in taxes. C) receive an $800 tax credit. D) receive a $400 tax deduction. Answer: B Diff: 2 Type: MC Categories: Calculate Total Tax Payable Financial Type: Quantitative Skill Type: Applied Tax Planning Strategies 1) Tax planning is best done at the same time you file your tax return. Answer: FALSE Diff: 1 Type: TF Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall

2) Tax avoidance may be subject to both criminal and civil prosecution. Answer: FALSE Diff: 2 Type: TF Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 3) Tax evasion occurs when taxpayers attempt to deceive the Canada Revenue Agency by knowingly reporting less tax payable than what the law requires them to pay. Answer: TRUE Diff: 2 Type: TF Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 4) An investor who receives $10 000 interest will pay higher taxes than one who receives $10 000 from eligible dividends. Answer: TRUE Diff: 2 Type: TF Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied 5) Filing an income tax return, even when you have no tax to pay, may increase the amount of RRSP contributions you are allowed in later years. Answer: TRUE Diff: 2 Type: TF Categories: How Tax Planning Fits a Financial Plan Financial Type: Qualitative Skill Type: Applied 6) Organizing your records to take advantage of tax credits and deductions and investing in tax sheltered accounts like RRSPs and TFSAs are the best ways to avoid taxes. Answer: TRUE Diff: 3 Type: TF Categories: How Tax Planning Fits a Financial Plan Financial Type: Qualitative Skill Type: Applied 7) The maximum Canada Education Savings Grant, CESG, may be as high as $1000. Answer: TRUE Diff: 1 Type: TF Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall

8) Subscriber contributions to an RESP received by a beneficiary, as part of an EAP, are tax-free to the beneficiary. Answer: TRUE Diff: 2 Type: TF Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 9) A tax-free savings account (TFSA) is appropriate as either a short-term or long-term savings vehicle. Answer: TRUE Diff: 1 Type: TF Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 10) Which of the following income is taxable income? A) Insurance benefits B) Inheritances C) Scholarship income D) Tips received Answer: D Diff: 2 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 11) Which of the following can be used to reduce your federal income taxes? A) Child support payments for a six-year-old B) Real estate taxes C) Provincial income taxes D) Student loan interest Answer: D Diff: 2 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall

12) John has been told that he should not take any overtime because it will push him into the next tax bracket. Which of the following is true? A) Moving into the next marginal tax bracket could reduce John's net income overall. B) The marginal tax brackets apply to tax credits and deductions and will not make a direct difference to John's net income. C) Moving into the next tax bracket will give John a larger refund on his RRSP contribution. D) Moving into the next tax brackets will give John a larger refund from his tax credits. Answer: C Diff: 3 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied 13) For people in the highest marginal tax bracket, which would save them the largest financial benefit? A) A $10 000 RRSP contribution B) A $10 000 RESP contribution. C) A $10 000 TFSA contribution. D) These would all be the same. Answer: A Diff: 3 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied 14) Which of the following is an acceptable method of reducing your tax bill for the current year? A) Making large payments on your outstanding mortgage B) Increasing your contributions to your tax free savings account C) Earning income outside of Canada D) Deducting employment expenses you weren't reimbursed for Answer: D Diff: 2 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied

15) Which of the following would produce the largest financial benefit to a tax payer who earns $96 000 and is in the 40% marginal tax bracket and the 25% average tax bracket? Assume that all items are options of equal importance. A) A $5000 contribution to his/her child's RESP B) A $5000 medical expense amount for orthodontics C) A $5000 contribution to his/her TFSA D) A $5000 contribution to his/her RRSP Answer: D Diff: 3 Type: MC Categories: Tax Planning Strategies Financial Type: Quantitative Skill Type: Applied 16) Marta received an inheritance of $20 000 and wants to allocate it towards her six-year-old son's education in the most effective manner. Which of the following considerations will have the greatest financial impact? A) Contributing to an RESP in such a way as to collect the maximum Canada Education Savings Grant B) Benefiting from the tax deferral in an RESP account as quickly as possible C) Applying for the Canada Learning Bond as soon as possible D) Collecting the maximum Educational Assistance Payments in the RESP account Answer: A Diff: 2 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied 17) When considering allocating funds to a TFSA account versus an RRSP account, which of the following is least critical? A) Avoiding taxation on the investment funds B) The intended purpose for the investment funds C) The marginal tax bracket of the individual D) The financial goals of the individual Answer: A Diff: 2 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied

18) Which of the following is not a feature of a registered education savings plan (RESP)? A) The Educational Assistance Payments B) The tax deduction for the contributions C) The Canada Education Savings Grant from the government D) The Canada Learning Bond for modest income families Answer: B Diff: 2 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 19) Which of the following is true for a Registered Disability Savings Plan (RDSP)? A) Contributions made to the plan are tax deductible. B) The annual maximum contribution is $17 750. C) Contributions can be made until the end of the year in which the beneficiary turns 59. D) All withdrawals made from the RDSP are tax free as long as the beneficiary receives the income. Answer: C Diff: 3 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 20) Reginald is thinking about asking his employer to defer a $5000 bonus to next year's income because he would have to pay $2050 in tax if he received it this year. What should he do? A) If his marginal tax rate next year will be less than 41%, he should consider deferring it. B) He should take the bonus now because of the opportunity cost. C) If his marginal tax rate next year will be less than 45%, he should defer it to next year. D) If his marginal tax rate next year will be less than 35%, he should defer it to next year. Answer: A Diff: 3 Type: MC Categories: How Tax Planning Fits a Financial Plan Financial Type: Quantitative Skill Type: Applied

21) Maddie and Dennis had their first child last month. They would like to maximize the amount they receive from the Canada Education Savings Grant (CESG). If they contribute $2500 per year to an RESP, approximately how many years of contributions will it take to maximize their CESG? A) 13 B) 14 C) 15 D) 16 Answer: C Diff: 2 Type: MC Categories: Tax Planning Strategies Financial Type: Quantitative Skill Type: Applied 22) The taxable amount from an educational assistance payment (EAP) may consist of all of the following except A) subscriber contributions. B) CESG. C) CLB. D) investment earnings. Answer: A Diff: 1 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall 23) The taxable amount from an accumulated income payment (AIP) consists of A) CESG. B) investment earnings. C) CLB. D) subscriber contributions. Answer: B Diff: 1 Type: MC Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Recall

24) Freida turned 18 in 2014. How much can she contribute to a tax-free savings account (TFSA) in May 2020? She has never opened a TFSA. A) $31 000 B) $38 500 C) $38 000 D) $44 000 Answer: D Diff: 3 Type: MC Categories: Tax Planning Strategies Financial Type: Quantitative Skill Type: Applied 25) Comment on receiving a large tax refund. Is it a good use of your funds considering present value concepts? Does the government pay you interest? What can you do to change your withholding or recalculate it? If you received a large refund, what would you use it for? Answer: This is really a psychology question and relates to a 'pay yourself first' kind of strategy except that the government benefits for a year on holding you money, when you could be benefiting. A large refund is not a prudent use of funds since the government does not pay you interest. Your employer can assist you in adjusting the appropriate amount to deduct. Some people have more tax deducted as a forced savings method. Will you use the large refund wisely? Diff: 2 Type: ES Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied

26) You are being paid on a base pay, commission, and bonus incentive compensation package. The economy can have a lot to do with how much you earn in a year as well as your personal efforts to improve sales and increase your customer base. Your employer is very flexible as to when and how it makes incentive payments to you. For instance, it can have a profit sharing plan which involves stock options and is flexible on when it will distribute profits and bonuses. Recent forecasts indicate that the economy will slow down next year and you have a sizable commission cheque and bonus payments owed to you this year. Under these circumstances, what would be your tax planning tactics to reduce taxes? Answer: Bonuses could be deferred to next year when it will likely be a low tax liability year. Purchasing stock in the company will create dividend income more favourably taxed. Company shares may afford you a capital gains tax preferred income. Personal RRSP contributions will reduce tax this year, so best to maximize what you can use now. Carry forward all deductions from previous years for charitable contributions and unused RRSP contributions. Ensure that all tax deductions for employment expenses are used for this type of job. Finally, always remember that trying to predict the future of the economy is impossible, so systematic savings is always a good bet. Diff: 3 Type: ES Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied 27) Describe and compare tax planning and tax avoidance. Use the web to research and give an example of each. Answer: Tax planning involves activities and transactions that reduce or eliminate tax through deductions and credits in a legal manner, while tax avoidance occurs for taxpayers who legally apply tax laws but in a way that the Canada Revenue Agency may determine contravenes the intentions of the Act and so may disallow. There are many possible examples. Most students would have to look up avoidance items on the web. Good examples of tax planning are carefully considering how much to allocate to RRSPs versus TFSAs versus RESPs (if you have children). There are many cases where tax avoidance items have been addressed and changed explicitly by the government. The kiddie tax rules are one example and closing the doors on investment trusts for regular corporations is another. Diff: 3 Type: ES Categories: Tax Planning Strategies Financial Type: Qualitative Skill Type: Applied

28) Miranda is 35 and her tax planning creates opportunities to receive a $1800 tax refund each year. If she allocates this to her RRSP each year and earns a 7 percent annual return, how much extra retirement savings will she have at age 65? If she allocated this $1800 each year to a regular investment account which also earned a 7 percent annual return, how much money would she have there? Explain the tax implications and assumptions you need to make for this comparison. Answer: RRSP P/Y 1 and C/Y 1. PV = 0; PMT = $1800; %I = 7; N = 30; CPT FV = $170 029. For the regular investment account there are two major considerations. There are many assumptions that could be used, but both the following need to be addressed. 1. The investment return of 7 percent will be subject to taxation each year and the rate will depend on whether the gains are interest, dividends or capital gains, and will also depend on the marginal tax bracket of the individual. Conservatively we could assume 25 percent of the 7 percent return is allocated to taxation, so Miranda's investment return would really be 5.25 percent in the regular investment account. 2. For the RRSP contribution of $1800, Miranda will also get the RRSP deduction. The amount of that benefit will also depend on her marginal tax bracket. If we assume she is in a 32 percent combined marginal tax bracket, then the $1800 contribution to her RRSP will return $576 to her, which would not happen in the regular investment account. Diff: 3 Type: ES Categories: How Tax Planning Fits a Financial Plan Financial Type: Quantitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 5 - Banking Services and Managing Your Money Background on Money Management 1) The only main source of liquidity are positive net cash flows from your personal cash flow statement. Answer: FALSE Diff: 2 Type: TF Categories: Background on Money Management Financial Type: Qualitative Skill Type: Recall 2) Credit card financing can be inexpensive. Answer: TRUE Diff: 1 Type: TF Categories: Background on Money Management Financial Type: Qualitative Skill Type: Recall 3) Rashid's monthly expenses are $4000 and he expects that his cash flow will always be sufficient to cover his expenses. How much should he ideally have in his emergency fund? A) $12 000 using a combination of liquid investments and access to credit B) $36 000 because it is always best to be safe C) None, but he needs a $24 000 limit on his credit card. D) $12,000 invested in two- to three-year GICs to earn a higher return Answer: A Diff: 3 Type: MC Categories: Background on Money Management Financial Type: Qualitative Skill Type: Applied 4) Fred's after tax income is $3600 a month and his expenses are generally $3600 as well. Last month he had a car accident which resulted in a $2000 unexpected expense due to the deductible on his insurance and he covered that expense with his credit card. What is the best way to describe his situation? A) Fred has a money management problem because he lives beyond his means. B) Fred has a liquidity crisis because he has no emergency fund. C) Fred is relying on short-term credit financing which can become very expensive. D) Fred needs better insurance coverage with a lower deductible. Answer: C Diff: 3 Type: MC Categories: Background on Money Management Financial Type: Qualitative Skill Type: Applied

5) Which of the following is not an appropriate investment for money allocated to an emergency fund? A) High-interest savings account B) Equity mutual fund C) Term deposit D) Money market mutual fund Answer: B Diff: 3 Type: MC Categories: Background on Money Management Financial Type: Qualitative Skill Type: Applied 6) Describe how interest rates affect your personal budget, income statement, balance sheet, and choices when managing money and liquidity. What kinds of accounts do they affect? Give two specific examples. Answer: This is a subjective answer. Interest rates affect the income and expense groups. On the income side, interest earned on an account varies. High interest rates can inhibit the ability to purchase a home or car or to obtain a student loan. Low interest rates can make financing a more affordable choice. An important factor to note in present economic times is how the low interest rates encourage people to borrow rather than to save. Diff: 2 Type: ES Categories: Background on Money Management Financial Type: Qualitative Skill Type: Applied 7) CIBC offers a GIC at 2% compounded annually and TD Bank offers the same rate but it is compounded semi-annually. What will be the dollar return in five years on each bank's GIC for a $1000 investment? Illustrate your calculation. Answer: CIBC P/Y = 1; C/Y = 1; PV = 1000; I/Y = 2; N = 5; CPT FV = = $104.08 TD Bank P/Y = 1; C/Y = 2; PV = 1000; I/Y = 2; N = 5; CPT FV = $1104.62 - $1000 = $104.62 Diff: 2 Type: ES Categories: Background on Money Management Financial Type: Quantitative Skill Type: Applied

8) Angela is concerned about saving money for the future and taking advantage of TFSA and RRSP accounts. If she was able to save $500 a month for 40 years, and her marginal tax bracket was 36%, how much more would she have in her RRSP, versus her TFSA, versus saving the funds in an unsheltered investment account? Assume the investment choice was the same for each account and grew at an annual rate of 6%. Show your work. Answer: There are a number of assumptions that could be made to approximate this scenario. TFSA- she gets the full 6% growth P/Y=12, C/Y =1, N = 40 × 12 = 480, I/Y = 6, PV = $0, PMT = -$500, CPT FV = $958 482 RRSP - she gets the full 6% growth and a refund each year of $2160 which she could invest as well, so can assume she effectively put away $680 a month at 6% return for 40 years P/Y = 12, C/Y = 1, N = 40 × 12 = 480, I/Y = 6, PV = $0, PMT = -$680, CPT FV = $1 303 535 Investment Account - she would have to pay tax on part of the 6% return each year, but not fully assuming it is not all interest income. Can make an assumption half the investment return is taxed, so the tax rate is not 36%, but 18%, so really gets 4.92% return. So $500 a month away at 4.92% for 40 years P/Y = 12, C/Y = 1, N = 40 × 12 = 480, I/Y = 4.92, PV = $0, PMT = -$500, CPT FV = $729 608 Diff: 3 Type: ES Categories: Background on Money Management Financial Type: Quantitative Skill Type: Applied Types of Financial Institutions 1) Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans. Answer: TRUE Diff: 1 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 2) An example of a depository financial institution is an insurance company. Answer: FALSE Diff: 2 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall

3) Deposits in commercial banks that are members of the CDIC are insured up to a maximum of $50 000 per account. Answer: FALSE Diff: 1 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 4) Credit unions and caisses populaires are not-for-profit depository institutions that offer similar services as chartered banks, but only to members. Answer: TRUE Diff: 2 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 5) Non-depository institutions provide banking services, but their deposits are not CDIC insured. Answer: FALSE Diff: 2 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 6) Finance companies should be the first place you go to try to get a loan because they specialize in financing. Answer: FALSE Diff: 3 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied 7) Mortgage companies pay more interest on deposits than a chartered bank. Answer: FALSE Diff: 1 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 8) Because Sam wishes to invest in stocks and bonds and has only $600 dollars available, a mutual fund would be a good option for him. Answer: TRUE Diff: 2 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied

9) Chartered banks are the only financial institutions which offer insurance on deposits. Answer: FALSE Diff: 2 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 10) The difference between a bank and a trust company is that only the trust company can provide estate planning and administrative services. Answer: TRUE Diff: 2 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 11) Schedule I, II and III banks offer essentially the same services. Answer: FALSE Diff: 2 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied 12) Credit unions and caisses populaires are owned by their members, but are controlled by an independent board of directors. Answer: FALSE Diff: 1 Type: TF Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 13) Financial institutions loan funds at A) lower interest rates than depositors receive. B) higher interest rates than depositors receive. C) rates similar to what savers receive. D) prime plus three percent. Answer: B Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied

14) Which of the following is a depository institution? A) Manulife Securities B) Bank of Nova Scotia C) Capital One Bank D) RBC Insurance Answer: B Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied 15) Which of the following companies would help to administer your will? A) RBC Capital Markets B) RBC Estate and Trust C) RBC Insurance D) Ontario Educational Credit Union Answer: B Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied 16) Which of the following is a non-depository financial institution? A) Credit union B) Trust company C) Investment dealer D) Caisse populaire Answer: C Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 17) To join a credit union, you need to A) have a steady job. B) be a member of a group. C) have established a good credit rating. D) All of the above Answer: B Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall

18) Which of the following is a not-for-profit depository institution that provides services only to members who have a common affiliation? A) RBC Financial Group B) Scotiabank C) Finnish Credit Union D) National Mortgage Alliance Answer: C Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied 19) Which of the following financial institutions specialize in making personal loans to people who are perceived to have a higher risk of default? A) Finance company B) Commercial bank C) Trust company D) Credit union Answer: A Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 20) If you were taking out a personal loan, the highest rate would probably be charged by a A) commercial bank. B) finance company. C) caisse populaire. D) credit union. Answer: B Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 21) Institutions that facilitate the purchase or sale of securities by firms or individuals by providing investment banking services and brokerage services are called A) finance companies. B) investment dealers. C) mutual fund companies. D) mortgage companies. Answer: B Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 7 Copyright © 2022 Pearson Canada Inc.

22) Non-depository institutions that provide insurance to protect individuals or firms against possible adverse events are called A) finance companies. B) securities firms. C) insurance companies. D) investment companies. Answer: C Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 23) Which of the following is a Schedule II chartered bank? A) National Bank B) Citibank C) HSBC D) Scotiabank Answer: C Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 24) If you have $10 000 that you do not expect to need for expenses in the next few years and you wish to put it somewhere so that it will earn a return, which of the following financial institutions would be the best option? A) A bank B) A mutual fund company C) A credit union D) Any of the above Answer: D Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Applied 25) Which of the following will not vary at a chartered bank? A) Interest rates on similar GICs B) CDIC insurance amounts on accounts C) Interest rates charged on mortgages D) Service fees charged to different customers Answer: B Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 8 Copyright © 2022 Pearson Canada Inc.

26) The Canada Deposit Insurance Corporation insures money on deposit at A) insurance companies. B) brokerage and securities dealers. C) chartered banks. D) all of the above. Answer: C Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 27) Using an ABM from another financial institution other than your own means A) your debit card won't work. B) you will be charged one ABM fee. C) you will be charged fees by two ABM sponsors. D) the branch is the same institution but not your banking branch. Answer: C Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 28) Mortgage companies A) take deposits, savings, and term deposits and lend the money to home buyers. B) act as intermediaries to provide mortgages for home buyers. C) facilitate the purchase and sale of mortgages. D) allow individual investors to achieve higher returns by direct investment in mortgages. Answer: B Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 29) Foreign banks that have subsidiaries operating in Canada are classified as a A) Schedule III bank. B) Schedule II bank. C) Schedule I bank. D) foreign conglomerate. Answer: B Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall

30) Which one of the following is not one of the specific positive outcomes from the creation and operation of the First Nations Bank of Canada (FNBC)? A) Commercial loan loss ratios in First Nations communities have decreased significantly. B) Banking services in First Nations communities are available through an online platform. C) The FNBC can take on reserve assets as security for a loan. D) There has been an increase in awareness of the unique needs and perspectives of Indigenous peoples and their banking needs. Answer: B Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 31) Financial conglomerates A) are Schedule III banks that have international operations but have set up a subsidiary in Canada. B) combine the services of payday loan companies, cheque cashing outlets, and pawnshops to provide easy access to these services in one location. C) are financial institutions that, in addition to providing services similar to a bank, can provide conglomerate services. D) aim to serve as a one-stop shop where individuals can conduct all of their financial services. Answer: D Diff: 1 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall 32) Which of the following statements is true concerning credit unions and caisses populaires? A) Membership in a credit union involves the purchase of 100 shares, more commonly referred to as a board lot purchase. B) They offer additional products and services that are not offered by chartered banks. C) They do not operate outside provincial boundaries. D) Deposit insurance is provided through the Canada Deposit Insurance Corporation (CDIC). Answer: C Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Qualitative Skill Type: Recall

33) Calculate the equivalent annual cost, rounded to the nearest percent, of a $200 loan that must be repaid in 14 days at a cost of $20. A) 147% B) 261% C) 60% D) 73% Answer: B Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Quantitative Skill Type: Applied 34) Calculate the cost of a $500 loan that has payment terms requiring a regular monthly payment of $125.11 for 6 months. Interest is compounded daily. A) 147% B) 261% C) 60% D) 73% Answer: A Diff: 2 Type: MC Categories: Types of Financial Institutions Financial Type: Quantitative Skill Type: Applied Banking Services Offered by Financial Institutions 1) Debit cards and credit cards both offer the benefit of short-term financing. Answer: FALSE Diff: 2 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 2) A total of $80 in charges for writing an NSF cheque is a real possibility. Answer: TRUE Diff: 2 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied

3) Katie's overdraft fee is $5 plus interest of 21% compounded daily. When she wrote a cheque that put her account in a $5000 overdrawn position for two weeks, she still saved money compared with a $40 NSF fee. Answer: FALSE Diff: 3 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied 4) Certified cheques, money orders, and traveller's cheques lower risk for the payee. Answer: TRUE Diff: 2 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 5) Money market funds are insured investments that invest in very safe investments and have a very low risk of default. Answer: FALSE Diff: 2 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 6) Usually, banks pay more interest on chequing accounts than they do on savings account deposits. Answer: FALSE Diff: 2 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 7) You are charged by your bank, but not by the institution you wrote the cheque to, for writing an NSF cheque. Answer: FALSE Diff: 2 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 8) At many financial institutions, you can avoid chequing account fees by maintaining a minimum cash balance in your account. Answer: TRUE Diff: 1 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 12 Copyright © 2022 Pearson Canada Inc.

9) Generally, debit cards have replaced the need to write cheques.. Answer: TRUE Diff: 1 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 10) You can reduce or eliminate fees when you use an ABM from your own financial institution. Answer: TRUE Diff: 1 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 11) As compared to certified cheques, money orders and drafts are typically used for larger amounts. Answer: FALSE Diff: 1 Type: TF Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 12) The type of financing that allows you to pay for purchases at a later time with no interest charged is A) a credit card. B) a debit card. C) an expense account. D) a line of credit. Answer: A Diff: 1 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 13) Which of the following is an advantage of using a debit card? A) Your total banking expenses are likely to be lower. B) The overdraft protection is less expensive than borrowing from your credit card. C) They have lower transaction fees than credit cards. D) You have no risk of being charged for insufficient funds. Answer: D Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 13 Copyright © 2022 Pearson Canada Inc.

14) Which of the following is a disadvantage of using debits cards over credit cards? A) You will not have a good record of your transactions. B) They charge higher interest rates than credit cards. C) You cannot tell if your bank account will become overdrawn. D) The fees charged to the cardholder can become significant. Answer: D Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 15) Which of the following provides the least guarantee of payment to the payee? A) Certified cheque B) Money order C) Traveller's cheque D) Personal cheque Answer: D Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 16) If you were accepting $22 000 payment for selling your car to a stranger, which form of payment should you request? A) Bank draft B) Money order C) Certified cheque D) Any of the above Answer: D Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 17) Which would be the least effective way to manage expenses when travelling internationally? A) Credit card B) Money orders C) Traveller's cheques D) Debit card Answer: B Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied

18) A type of cheque that is written on behalf of an individual and will be charged against a large well-known financial institution or credit card sponsors account, but has no payee designated on the cheque is called a A) cashier's cheque. B) money order. C) traveller's cheque. D) personal cheque. Answer: C Diff: 1 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 19) A stop payment on a cheque A) only applies when you write a cheque. B) can only be accomplished if the payment has not cleared. C) usually occurs in response to a request by the payee. D) is a regular service for most customers. Answer: B Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 20) kelpy deposits $1000 in a three year GIC with four percent interest compounded annually. How much interest would she earn by maturity? A) $124.86 B) $120.00 C) $ 40.00 D) $1124.86 Answer: A Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied

21) You have $5000 saved which you may need for home repairs at any time in the next few years. If you did need the funds, you would have a weeks' notice to access the funds. Which of the following would likely give you the best return for your $5000? A) A three-year cashable GIC outside a TFSA B) A three-year cashable GIC in a TFSA account C) A savings account D) A three-year term deposit in a TFSA account Answer: B Diff: 3 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 22) Which of the following accounts would normally give you higher interest combined with access to your funds with a few days' notice? A) Money market funds B) Chequing account C) Canada Savings Bond D) Savings account Answer: A Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 23) John has overdraft protection which has a fee of $5 per use and a 21% interest charge, compounded daily. NSF fees at his bank are $35. This month John's unexpected car expense caused his account to become overdrawn by $1200 for 14 days until his pay cheque was deposited. What was the total expense for John in this circumstance? A) $5.00 B) $35.00 C) $14.70 D) $9.70 Answer: C Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied

24) Which of the following is the better banking option for jan who keeps a minimum bank balance of $1000, needs liquidity and does 10 transactions per month? A) Ace Bank pays no interest, has no ABM fees but charges a $7.00 monthly account fee. B) Bee Bank charges a $60 annual fee for the account, pays interest at two percent on the average monthly balance, and has $1.00 ABM fees. C) Sea Bank charges no fees as long as the account balance remains above $1000, pays two percent interest on the average monthly balance, charges $1.00 ABM fees, and requires no minimum balance. D) Dee Bank requires no minimum balance, pays one percent interest on the average monthly balance, and allows 10 free ABM withdrawals a month, but charges $3 per withdrawal thereafter. Answer: D Diff: 3 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied 25) Jeff put $50 into a chequing account with a balance of $600. He then withdraw funds using the ABM machine 14 times that month at a cost of $1.50 per withdrawal and wrote 12 cheques at a cost of $0.50 each. The account also has a monthly charge of five dollars. What are the total bank charges for the month? A) $5.00 B) $27.00 C) $32.00 D) $33.50 Answer: C Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied 26) Overdraft protection normally is available with A) no fees and no interest. B) low fees and high interest. C) high fees and low interest. D) high fees and high interest. Answer: D Diff: 1 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall

27) Which of the following is becoming less relevant with the increase of on line banking? A) Cheque registers B) Overdraft protection C) Stop payment services D) Debit cards Answer: A Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 28) Mobile banking applications that enable you to bank via your smart phone include all of the following benefits except A) checking your account balance. B) applying for a loan. C) depositing cheques. D) making purchases. Answer: B Diff: 1 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 29) What is the correct sequence of steps for an e-Transfer? A) Select the e-Transfer link, enter a security question and answer, enter the e-mail address, money is transferred to the recipient, sender receives a confirmation e-mail B) Select the e-Transfer link, enter the e-mail address,, money is transferred to the recipient, sender receives a confirmation e-mail C) Enter the e-mail address, enter a security question and answer, select the e-Transfer link, money is transferred to the recipient, sender receives a confirmation e-mail D) Select the e-Transfer link, enter the e-mail address, enter a security question and answer, money is transferred to the recipient, sender receives a confirmation e-mail Answer: D Diff: 2 Type: MC Categories: Banking Services Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall

30) Illustrate how you would quantify the effective annual interest rate for someone who was charged two $40 NSF fees on their account due to bouncing a cheque (writing a cheque when there are not enough funds in their bank account to cover it) for $1000 which would have been covered by their pay cheque in five days' time. Explain the effective interest rate charged if they had overdraft protection with a 21 percent interest charge and a $5.00 fee. Comment on better ways to manage liquidity than either of these options. Answer: This illustrates the importance of money management, especially liquidity. Effective annual rate for the $80 NSF fees This can be considered the interest charge for borrowing the funds for five days: 80/1000 × 356/5 = 584% Effective rate with the overdraft protection: (2.88 + 5)/1000 × 365/5 = 57.5% While the overdraft fee is much better than the NSF fees, even a credit card balance is a lower effective interest rate because it has no $5 service fee. Diff: 3 Type: ES Categories: Banking Services Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied Selecting a Financial Institution 1) Bank fees for using an automatic banking machine (ABM) are not usually a significant consideration in choosing a bank with which to do business. Answer: FALSE Diff: 1 Type: TF Categories: Selecting a Financial Institution Financial Type: Qualitative Skill Type: Recall 2) Since rates and fees differ only slightly between all national banks, there is little need to consider these when choosing your financial institution. Answer: FALSE Diff: 2 Type: TF Categories: Selecting a Financial Institution Financial Type: Qualitative Skill Type: Recall 3) Because they have lower overhead, web-based financial institutions tend to pay higher interest rates on deposits than institutions with physical branches. Answer: TRUE Diff: 1 Type: TF Categories: Selecting a Financial Institution Financial Type: Qualitative Skill Type: Recall 19 Copyright © 2022 Pearson Canada Inc.

4) The minimum required balance needed to earn interest varies among financial institutions. Answer: TRUE Diff: 1 Type: TF Categories: Selecting a Financial Institution Financial Type: Qualitative Skill Type: Recall 5) You have $5000 saved in case you may need to replace the furnace in your house which has been acting up. Which of the following would be the best place to put the $5000? A) A one-year fixed-rate GIC earning four percent B) A stock mutual fund which earned nine percent in the past year C) A term deposit earning three percent held in a TFSA D) A high interest savings account earning three percent Answer: C Diff: 3 Type: MC Categories: Selecting a Financial Institution Financial Type: Quantitative Skill Type: Applied 6) The Canada Deposit Insurance Corporation (CDIC) insures A) bank deposits and GICs to a specified limit. B) your chequing accounts for a small charge to the depositor. C) only guaranteed investment certificates. D) GICs, Canada Savings Bonds, and Canada Premium Bonds. Answer: A Diff: 1 Type: MC Categories: Selecting a Financial Institution Financial Type: Qualitative Skill Type: Recall 7) Research two financial institutions on the web and compare them based on important factors you should consider when choosing a financial institution. What advantages do they each give to students? How does that change once one is no longer a student? Indicate and justify which institution you feel would be better for you. Cite your sources. Answer: Several answers are acceptable here, such as a debit card, service fees, number of free transactions per month, minimum monthly balances, credit card, location, free cheques, interest rate offered, interest rate charged on loans, convenience, deposit rates, international services, abundance of ATMs, cross country access and fees and then compared with non-student rates. Diff: 3 Type: ES Categories: Selecting a Financial Institution Financial Type: Qualitative Skill Type: Applied

Savings Alternatives Offered by Financial Institutions 1) Guaranteed investment certificates (GICs) with shorter maturity dates tend to pay higher interest rates than those with longer maturity dates. Answer: FALSE Diff: 1 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 2) A TFSA and a Term Deposit are essentially the same thing. Answer: FALSE Diff: 1 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 3) Investments with a higher risk of default pay higher rates of interest than those that are less risky. Answer: TRUE Diff: 1 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 4) TFSAs allow you to withdraw funds tax free and then replace the funds, whenever you have more savings. Answer: FALSE Diff: 2 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 5) A money market fund would be a good place to invest funds set aside for an emergency. Answer: TRUE Diff: 2 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 6) A good investment for Emma's emergency fund might be a five-year cashable term deposit. Answer: TRUE Diff: 2 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 21 Copyright © 2022 Pearson Canada Inc.

7) Mutual fund investments such as a money market fund are guaranteed by the CDIC. Answer: FALSE Diff: 2 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 8) There is no real difference between a chequing account and a savings account at the same bank. Answer: FALSE Diff: 2 Type: TF Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 9) Regarding TFSA accounts, which of the following is true? A) Using your TFSA for tuition savings makes sense as long as the funds are replaced before the next term. B) If your TFSA investment deposit grows from $5000 to $10 000 you can withdraw only the $5000 deposit tax free. C) Using a TFSA account for your everyday banking would be a good way to avoid paying tax on the interest from your bank account. D) Using a TFSA account to hold a cashable GIC for an emergency will mean you do not have to pay tax on the interest earned. Answer: D Diff: 3 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 10) Which of the following is true regarding guaranteed investment certificates (GICs)? A) The longer the term, the lower the interest rate paid, all else equal. B) All banks offer the same rates on GICs. C) Early withdrawals of money are not subject to a penalty. D) Much higher interest rates (than competitors) would likely reflect higher risk. Answer: D Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall

11) Which of the following would normally offer the best rate of return? A) A three-year GIC for $10 000 B) A money market fund C) A four-year GIC for $1000 D) A four-year term deposit for $10 000 Answer: C Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 12) Your chartered bank is offering a one-year GIC with an interest rate of two percent, and a one-year cashable GIC at one and a half percent. Term deposits are paying one percent. You have $10 000 to invest of which you feel $5000 is sufficient for emergency fund purposes. How should you invest your funds given the scenario above? A) $5 000 in the one-year GIC and $5 000 in a term deposit B) $5 000 in the one-year GIC and $5 000 in the one-year cashable GIC C) $10,000 in the one-year GIC D) $10,000 in the one-year cashable GIC Answer: B Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied 13) In planning a money management strategy, which of the following is most important? A) Select a combination of investments with varying risk and return. B) Select a combination of investments to achieve both adequate liquidity and return. C) Ensure all short-term investments are fully liquid. D) Shop around to find the institution paying the highest interest rates on GICs. Answer: B Diff: 3 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 14) To get a better rate on an emergency fund investment you should invest in a A) five-year cashable GIC. B) one-year non-cashable GIC. C) money market fund. D) one-year term deposit. Answer: A Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Applied 23 Copyright © 2022 Pearson Canada Inc.

15) Which of the following financial institutions are restricted in their ability to accept deposits? A) Trust Companies B) Schedule I banks C) Schedule II banks D) Schedule III banks Answer: D Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 16) Which of the following is a true statement about overdraft protection? A) Overdraft protection is an inexpensive form of short-term credit. B) Your bank may charge you for having overdraft protection even if you don't use it. C) Overdraft fees are already included in your regular monthly bank fees. D) Overdraft interest may be as high as 29% compounded daily. Answer: B Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall 17) A 180-day GIC pays annualized interest at 0.5%. How much interest will you earn on $5000 if you hold it to maturity? A) $25 B) $12.33 C) $32.50 D) $16.50 Answer: B Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied 18) In general, when an investment is more liquid, the return you receive will be A) lower. B) higher. C) less predictable. D) Liquidity does not affect return. Answer: A Diff: 1 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall

19) Jack has $2000 that he wishes to invest for the next two years. One-year GICs are currently paying 1% while two-year GICs are paying 2% compounded annually. Economists are predicting that interest rates will rise by the end of the year. What is the minimum interest rate Jack would need in year two, to make the one-year GIC better than the two-year GIC? A) 14.8 percent B) 16.2 percent C) 1.0 percent D) 16.8 percent Answer: B Diff: 3 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied 20) Lorenzo is deciding between two banks for his chequing account. Thrift Bank requires a minimum deposit of $100, charges a monthly fee of eight dollars, plus $0.50 per cheque. Merchants Bank also requires a minimum deposit of $100, charges no monthly fee, but charges $1.00 per cheque. How many cheques would Lorenzo need to write each month to make Thrift Bank less expensive to use than Merchants Bank? A) 16 cheques B) 8 cheques C) 24 cheques D) 12 cheques Answer: A Diff: 3 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied 21) Which short-term investment likely offers the highest return? A) Savings account B) Chequing account C) GIC D) Term deposit Answer: C Diff: 1 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Qualitative Skill Type: Recall

22) A 3-year GIC pays annualized simple interest at two percent. How much interest will you earn on $5000 if you hold it to maturity? A) $300 B) $160.27 C) $325.00 D) $162.50 Answer: A Diff: 2 Type: MC Categories: Savings Alternatives Offered by Financial Institutions Financial Type: Quantitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 6 - Assessing, Managing, and Securing Your Credit Background on Credit 1) Acquiring and using a credit card is an excellent way to start building your credit history. Answer: TRUE Diff: 2 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Applied 2) Revolving open-end credit typically does not specify a maximum amount that can be borrowed. Answer: FALSE Diff: 2 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 3) When you use credit to purchase a second product at half price (e.g. a "buy one get another for 50% sale"), you save money. Answer: FALSE Diff: 2 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Applied 4) Credit insurance will pay off all your credit card debt when you cannot work due to accident or illness. Answer: FALSE Diff: 2 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 5) An instalment loan generally comes with a specific loan repayment schedule that allocates the payment between principal and interest. Answer: TRUE Diff: 1 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall

6) With revolving open-end credit, the borrower can re-borrow the amount that was paid. Answer: TRUE Diff: 1 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 7) Your spending behaviour when using a credit card versus using cash may be different. Answer: TRUE Diff: 1 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 8) Credit problems remain on a credit bureau for up to 5 years. Answer: FALSE Diff: 1 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 9) Individuals who do not have a high level of revenue, a low level of expenses, a large amount of capital and collateral, and a good credit history cannot get credit. Answer: FALSE Diff: 1 Type: TF Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 10) Which of the following is an advantage of using credit? A) It increases the need to cover cash flow shortages. B) It increases the number of cheques written. C) It does not affect your cash flow statement. D) It reduces the need to carry cash. Answer: D Diff: 1 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall

11) Which of the following is a typical example of an instalment loan? A) A credit card B) A student loan C) A line of credit D) A demand loan Answer: B Diff: 2 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Applied 12) Which of the following will have a negative effect on a credit history? A) Taking out a car loan with a ten year maturity B) Making as many purchases as possible with cash C) Never exceeding your credit limit on your credit card D) All these options would have a positive effect on credit history. Answer: B Diff: 2 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Applied 13) Revolving credit means A) the loan balance will fluctuate based on the amount used. B) the interest rate will revolve above the prime rate. C) it is a credit card. D) it is a mortgage. Answer: A Diff: 2 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 14) Credit insurance A) is a free benefit on most credit cards. B) can be used to pay off all debt when a creditor becomes unemployed. C) is a good substitute for health and disability insurance. D) can cover monthly credit repayments if a consumer cannot work. Answer: D Diff: 3 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Applied

15) The loan contract identifies all but which of the following? A) Credit score B) Amount of the loan C) Interest rate D) Loan repayment schedule Answer: A Diff: 1 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 16) Henrietta has an outstanding balance of $3000 on her credit card. Her minimum payment is likely to be: A) $90 B) $100 C) $3000 D) $30 Answer: A Diff: 1 Type: MC Categories: Background on Credit Financial Type: Quantitative Skill Type: Applied 17) Everything else being equal, when assessing your credit worthiness, creditors prefer A) a modest level of income. B) a modest level of expenses. C) a large amount of collateral. D) a small amount of capital. Answer: C Diff: 1 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall 18) When applying for credit, you may have to provide all of the following except A) a budget. B) a personal balance sheet. C) income documentation. D) a personal cash flow statement. Answer: A Diff: 1 Type: MC Categories: Background on Credit Financial Type: Qualitative Skill Type: Recall

19) You have the cash available to pay off a $6500 loan that will cost you $450 in interest this year and you are deciding whether to pay it off or make an investment. If you are in a 30 percent marginal tax bracket, how much interest would you have to earn to make the investment a better decision? Answer: Your $6500 investment must obviously earn more than $450 in interest paid plus the tax on that amount. In order to earn at least $450 after tax, you would have to earn $642.86 before tax. You calculate this as follows: $450/(1 - tax rate). (Proof: $642.86 × 0.3 = $192.86 in tax. $642.86 - $192.86 = $450. In order to earn a pre-tax profit of $642.86, your return would have to be: 642.86/6500 = .0989 This works out to 9.89 percent, so you would need to earn at least that to invest rather than pay off the loan. Diff: 3 Type: ES Categories: Background on Credit Financial Type: Quantitative Skill Type: Applied 20) What are the advantages and disadvantages of using credit? Answer: Answers will vary, but here is a selection of possibilities. Benefits: Allows you to achieve some of your goals more quickly. Helps you establish a good credit history, which in turn helps you to build a good credit score. Eliminates the need for carrying cash. Allows you to make purchases where cash is not an option. May offer additional benefits, such as air miles and travel insurance. Can be a source of short-term loans. A record of your past transactions is maintained by the credit card company. Disadvantages: May have difficulty making your payments. Temptation to make impulse purchases. You can damage your credit rating if you do not make the minimum required repayment. Interest cost of credit can be high. Ability to save money is reduced if you have high credit payments. May have to withdraw from your savings to cover your credit card payments. Diff: 3 Type: ES Categories: Background on Credit Financial Type: Qualitative Skill Type: Applied

Credit Bureaus 1) If your only credit is a credit card with a $15 000 limit which you've had for ten years, and you keep your balance below $2000 and always pay at least the minimum due, you will have a good credit rating. Answer: TRUE Diff: 3 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied 2) The credit scoring model used in Canada is referred to as the Fair Isaac Corporation (FICO). Answer: FALSE Diff: 2 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied 3) Your credit report indicates your spouse's personal information. Answer: FALSE Diff: 2 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 4) If you have a poor credit score, there may be lenders willing to loan you money but at a higher interest rate. Answer: TRUE Diff: 2 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 5) The credit bureaus will have approximately the same score for each individual in their records. Answer: FALSE Diff: 1 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 6) In evaluating a borrower's creditworthiness, income and expenses are carefully reviewed, but assets are not relevant. Answer: FALSE Diff: 2 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 6 Copyright © 2022 Pearson Canada Inc.

7) A BEACON score of 820 indicates a person has a high likelihood of paying back debt as expected. Answer: TRUE Diff: 2 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied 8) The most important element affecting your credit score is your debt level. Answer: FALSE Diff: 2 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 9) Someone with a credit score of 800 will pay a higher interest rate than someone with a score of 820. Answer: FALSE Diff: 2 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied 10) Despite a high credit score, your income level may be the determining factor in whether you can get a loan. Answer: TRUE Diff: 1 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 11) The minimum credit score required by different financial institutions, for the same type of loan, is different. Answer: TRUE Diff: 1 Type: TF Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall

12) Which of the following will not be included on your credit report? A) Your personal information B) Your employment income C) Unpaid accounts D) Companies that have recently inquired about your credit report Answer: B Diff: 3 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 13) The item that receives the most weight in the BEACON credit scoring system is A) the amount of credit used each month. B) credit payment history. C) credit use. D) the total amount of credit. Answer: B Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 14) Which of the following is not an element of a credit report? A) Your account history B) Bank information C) Marital status D) A list of creditor contracts Answer: C Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 15) Low credit scores may result in A) lower interest rates for borrowing. B) higher interest rates for borrowing. C) automatic acceptance of your credit application. D) targeting by credit companies. Answer: B Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall

16) A poor credit history will appear on your credit report for A) 3 to 5 years. B) 3 to 10 years. C) 5 to 7 years. D) 7 to 10 years. Answer: B Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 17) Which of the following can be used by a creditor in deciding whether or not to grant credit? A) Credit history B) Marital status C) Gender D) Any of the above Answer: A Diff: 1 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 18) Which of the following statements is true regarding a review of your credit bureau report? A) You will not have authority to make corrections, as the information must come from a financial institution. B) It will help determine if there are credit cards you should apply for to improve your credit standing. C) It will reveal if you have sufficient income to carry additional debt. D) It will reveal deficiencies that you can work on to improve your credit rating. Answer: D Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied 19) The best policy regarding credit is A) always go for the highest credit limit possible. B) always make the minimum payment. C) pay back debt using consistent payments every month. D) take steps to increase your credit score. Answer: D Diff: 3 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied

20) A credit bureau report may include A) your account history. B) your spouse's name. C) a list of debtor contacts. D) all of the above. Answer: A Diff: 3 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 21) A large number of recent credit inquiries suggests A) you have a high BEACON score. B) you are having trouble getting credit. C) you have a good rating with many financial institutions. D) you are very diligent in tracking your credit information. Answer: B Diff: 3 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied 22) Even though you may have a very high credit score, the loan approval A) relies on a lower BEACON score. B) relies on consistent scores from all credit reporting agencies. C) relies on the lender's assessment of sufficient income. D) relies on the impression you make with your lender. Answer: C Diff: 3 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 23) Errors on credit reports can occur. If there is an error on your report A) it is your responsibility to review it once a year for accuracy and inform of any errors. B) it can result in the credit agency being charged under the Fair Credit Reporting Act. C) the creditor reporting to the agency must correct it solely at your request. D) you must inform the Better Business Bureau to take your case to the authorities. Answer: A Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall

24) TransUnion is aware that you are one month late on your car payment, while Equifax has not yet uncovered this information. Which of the following statements is correct? A) TransUnion will have a lower credit score for you than Equifax. B) Both companies will have the same credit score because of the grace period. C) Being late one month on a car payment will not affect your BEACON score. D) Both companies will have the same credit score because car payments are backed by collateral. Answer: A Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied 25) A good credit score starts at around A) 460. B) 500. C) 660. D) 700. Answer: C Diff: 1 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 26) A low credit score is most likely the result of A) making only minimum payments. B) missed payments. C) a lengthy credit history. D) searching for new credit too frequently. Answer: B Diff: 1 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall 27) Filing for bankruptcy will appear on your credit report for A) 5 to 6 years. B) 6 to 7 years. C) 7 to 8 years. D) 8 to 9 years. Answer: B Diff: 2 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall

28) What information is provided in a credit report? Answer: Answers will vary, but here is a selection of possibilities. - Your personal information - A consumer statement showing the details of any explanation that you have submitted to the credit bureau regarding a particular account - A summary of your accounts - Your account history - Bank information regarding any accounts that were closed for derogatory reasons - Public information regarding bankruptcies, judgments, and secured loans - The names of creditors who have made account inquiries - A list of creditor contacts Diff: 3 Type: ES Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Applied Consumer Credit Products 1) The most common consumer credit products are credit cards, mortgages, business loans, car loans, and student loans. Answer: FALSE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall Credit Cards 1) Credit issued by department stores for relatively long periods of time is called non-installment credit. Answer: FALSE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 2) Using your credit card provides you free financing each month. Answer: TRUE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall

3) Someone with a poor credit rating might be offered a credit card with a 28% interest rate while someone with a high credit rating may be offered 21%. Answer: FALSE Diff: 3 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Applied 4) Using the previous balance method, if you paid your credit card off five days late and your balance was $5000. You would owe $15.16 in interest if the interest rate being charged is 20%, compounded daily. Answer: FALSE Diff: 3 Type: TF Categories: Credit Cards Financial Type: Quantitative Skill Type: Applied 5) Credit card use can be good for your financial plan if you have budgeted to pay the entire balance when the statement is due. Answer: TRUE Diff: 2 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Applied 6) A retail credit card limits your purchases to a single merchant. Answer: TRUE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 7) A secured credit card allows a consumer to transfer the balance owed on an existing credit card to save money on interest. Answer: FALSE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 8) A balance transfer credit card is used by individuals who have had credit problems in the past and want to rebuild their credit score. Answer: FALSE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 13 Copyright © 2022 Pearson Canada Inc.

9) A U.S. dollar credit card is used by individuals visiting Canada from the United States who want to make their Canadian purchases in U.S. dollars. Answer: FALSE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 10) Prepaid credit cards are advantageous for individuals who do not have a bank account. Answer: TRUE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 11) The easiest way to establish a credit history is to apply for and use a credit card. Answer: TRUE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 12) A credit card company makes money by receiving a percentage, usually 7 percent, of the payments made to merchants with the credit card. Answer: FALSE Diff: 2 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Applied 13) Your credit limit is the maximum amount of credit allowed. Answer: TRUE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 14) Interest is charged on cash advances from the date of the transaction. There is no grace period. Answer: TRUE Diff: 1 Type: TF Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall

15) When do you need to use a credit repair service? A) When you find an error on your credit report which is negatively affecting your score B) At the point that you need to work with the trustee in bankruptcy to develop a consumer proposal C) A credit repair company should be contacted only as a last resort to avoid bankruptcy. D) Never, as they have no special powers to correct information on your credit report. Answer: D Diff: 3 Type: MC Categories: Credit Cards Financial Type: Qualitative Skill Type: Applied 16) A credit card charges 18%, compounded daily. Frank has $750 due on the statement date. He is only able to make the minimum payment of $22.50. If the billing cycle is 30 days and the grace period is 20 days, and he pays the full balance at the next due date, how much interest would he owe using the adjusted balance method? A) $28.70 B) $17.94 C) $18.49 D) $29.59 Answer: A Diff: 3 Type: MC Categories: Credit Cards Financial Type: Quantitative Skill Type: Applied 17) A credit card charges 18%, compounded daily. Frank has $750 due on the statement date. He is only able to make the minimum payment of $22.50. If the billing cycle is 30 days and the grace period is 20 days, and he pays the full balance at the next due date, how much interest would he owe using the previous balance method? A) $10.76 B) $17.94 C) $18.49 D) $29.59 Answer: D Diff: 3 Type: MC Categories: Credit Cards Financial Type: Quantitative Skill Type: Applied

18) If a credit card has a 30-day billing period, a 20-day grace period, and charges an interest rate of 20%, compounded daily, how much interest will be charged on a $5000 average monthly balance which gets paid 40 days after the statement due date using the average daily balance method? A) $246.58 B) $136.99 C) $109.59 D) $172.60 Answer: A Diff: 3 Type: MC Categories: Credit Cards Financial Type: Quantitative Skill Type: Applied 19) Your credit card had balances of $800 for 13 days, $600 for 5 days, and $650 for 12 days. Assume an annual interest rate of 18%, 30-day billing cycle and 20-day grace period. How much is the interest charge using the average daily balance method, if the credit card gets paid off five days after the statement due date? A) $17.42 B) $8.71 C) $10.45 D) $19.17 Answer: D Diff: 3 Type: MC Categories: Credit Cards Financial Type: Quantitative Skill Type: Applied 20) Credit cards that carry annual fees of several hundred dollars, and offer rewards such as priority access to private jet programs and concierge service at luxury hotels are known as A) ultra cards. B) black cards. C) prestige cards. D) platinum plus cards. Answer: C Diff: 1 Type: MC Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall

21) If you have a poor credit history and have difficulty obtaining a standard unsecured credit card, you may be able to obtain a __________ credit card. A) credit recovery B) secured C) temporary D) balance transfer Answer: B Diff: 1 Type: MC Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall 22) On April 3, Mandeep paid $800 for new All Season tires on her car. She completed the purchase using her credit card. Her credit card billing cycle ends on the 15th of each month. She receives a grace period of 20 days to pay her bill once the billing cycle ends. How many free days of credit does Mandeep receive? A) 32 B) 20 C) 35 D) 15 Answer: A Diff: 3 Type: MC Categories: Credit Cards Financial Type: Quantitative Skill Type: Applied 23) What are the advantages of using a credit card? Answer: Answers will vary, but here is a selection of possibilities. Credit cards help you to: 1) establish a good credit history 2) create credit capacity 3) eliminate the need for carrying cash 4) provide a method for payment when cash is not an option 5) earn additional benefits 6) receive free financing until the due date on your credit card statement 7) keep track of all expenses made using a credit card. Diff: 2 Type: ES Categories: Credit Cards Financial Type: Qualitative Skill Type: Recall

Home Equity Line of Credit (HELOC) 1) If Brian has a home worth $400 000 and a mortgage of $200 000, he should be able to get a HELOC for at a better interest rate than if he got an unsecured line of credit. Answer: FALSE Diff: 3 Type: TF Categories: Home Equity Loans Financial Type: Quantitative Skill Type: Applied 2) The proceeds from a home equity loan must be used for home improvements. Answer: FALSE Diff: 2 Type: TF Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Applied 3) The required minimum payment on a a home equity line of credit is the monthly interest accrued on the amount borrowed. Answer: TRUE Diff: 1 Type: TF Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Recall 4) A home equity line of credit can also be considered a second mortgage. Answer: TRUE Diff: 1 Type: TF Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Recall 5) You should use the same financial institution that provided you with your original mortgage to obtain a home equity line of credit. Answer: FALSE Diff: 1 Type: TF Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Recall

6) Harry purchased his condo for $330 000 and now the appraised value is . His outstanding mortgage is $228 000. What is the maximum home equity line of credit Harry would qualify for? A) $36 000 B) $60 000 C) $72 000 D) $105 600 Answer: B Diff: 3 Type: MC Categories: Home Equity Loans Financial Type: Quantitative Skill Type: Applied 7) A house was purchased for $300 000 and has a market value of . The equity in this house is A) $87 000. B) $213 000. C) $112 000. D) $25 000. Answer: C Diff: 1 Type: MC Categories: Home Equity Loans Financial Type: Quantitative Skill Type: Applied

and a mortgage of

8) Over the past 10 years you have paid your mortgage principal down from to and your house has a market value went from to . Approximately how much of a home equity line of credit could you receive if you applied now? A) $61 000 B) $45 000 C) $85 600 D) $27 000 Answer: B Diff: 3 Type: MC Categories: Home Equity Loans Financial Type: Quantitative Skill Type: Applied

9) Your house is worth $278 000 and you have a first mortgage of . You are also using the house to secure a personal loan for $8500. How large a home equity line of credit can you qualify for? A) $63 600 B) $31 400 C) $70 400 D) $23 900 Answer: D Diff: 3 Type: MC Categories: Home Equity Loans Financial Type: Quantitative Skill Type: Applied 10) Devon has owned a home for eight years. It was purchased for . She has a first mortgage of , a car lease with a buyout amount of $12 000, and credit card debt of $1989. How much of a home equity loan can be applied for if the house was recently appraised at ? A) $96 300 B) $108 300 C) $139 600 D) $74 700 Answer: B Diff: 3 Type: MC Categories: Home Equity Loans Financial Type: Quantitative Skill Type: Applied 11) For the best customers, a bank will lend money at A) the prime rate. B) the T-bill rate. C) the minimum term rate. D) the bank rate. Answer: A Diff: 1 Type: MC Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Recall

12) Lenders do not like to lend the full amount of the equity in your home when extending a home equity line of credit because A) they want to help you make responsible borrowing decisions. B) the market value of the home may decline. C) the lender can claim your home. D) they want to make sure that you can afford the minimum monthly payment. Answer: B Diff: 2 Type: MC Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Recall 13) With respect to a home equity line of credit (HELOC), which of the following statements is true? A) Interest only payments reduce the risk of default. B) HELOC customers are charged the prime rate of interest on their HELOC. C) A HELOC is an unsecured loan. D) Always have a plan for the repayment of the HELOC. Answer: D Diff: 2 Type: MC Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Recall Personal Loans 1) The risk in co-signing on a loan for a friend is not significant, as you are not the primary borrower. Answer: FALSE Diff: 1 Type: TF Categories: Personal Loans Financial Type: Qualitative Skill Type: Applied 2) In considering the true cost of a personal loan, if you used collateral to reduce the interest charge, then the appraisal fee charged to evaluate the assets should not be considered part of the cost of borrowing. Answer: FALSE Diff: 3 Type: TF Categories: Personal Loans Financial Type: Quantitative Skill Type: Applied

3) One of the greatest benefits of leasing a car is that you do not have the hassles of ownership. Answer: FALSE Diff: 2 Type: TF Categories: Car Loans Financial Type: Qualitative Skill Type: Applied 4) If you were charged the maximum legal rate of interest on a $1000 loan for one year, the interest cost would be $60. Answer: FALSE Diff: 2 Type: TF Categories: Personal Loans Financial Type: Quantitative Skill Type: Applied 5) A 20 percent annual interest rate on a $10 000 loan amortized over five-years would result in interest charges of . Answer: FALSE Diff: 2 Type: TF Categories: Personal Loans Financial Type: Quantitative Skill Type: Applied 6) Jacob needs to borrow $19 000 to purchase a car. If the interest rate is seven percent compounded monthly, which of the following is true when considering a five, seven or ten year term? A) If he selects a seven year term, he will save interest by keeping his payments to $286.76 per month. B) If he selects a ten year term, he will save $2385.28 in interest compared with the seven year term. C) If he selects a five year term, he will save $1514.55 in interest compared with the seven year term. D) The overall interest will be the same, regardless of the term. Answer: C Diff: 3 Type: MC Categories: Car Loans Financial Type: Quantitative Skill Type: Applied

7) The term amortized refers to A) the method by which interest is calculated in a loan contract. B) the repayment of a loan through a series of equal payments. C) the loan maturity date in a loan contract. D) the term contracted to pay off a loan. Answer: B Diff: 1 Type: MC Categories: Personal Loans Financial Type: Qualitative Skill Type: Recall 8) Making extra payments on a loan A) reduces the total interest paid. B) frees up cash flow for other expenses. C) lengthens the maturity of the loan. D) reduces the size of future payments. Answer: A Diff: 2 Type: MC Categories: Personal Loans Financial Type: Qualitative Skill Type: Recall 9) From a borrower's perspective, all else the same, a longer-term loan A) costs more in interest. B) increases the size of monthly payments. C) decreases the size of monthly payments so costs less in interest. D) is most cost effective in the long run. Answer: A Diff: 2 Type: MC Categories: Personal Loans Financial Type: Qualitative Skill Type: Recall 10) Collateral A) gives the lender additional recourse if the payments are not made. B) is used on unsecured loans. C) increases the interest rate on loans. D) is required on all loans except revolving credit. Answer: A Diff: 2 Type: MC Categories: Personal Loans Financial Type: Qualitative Skill Type: Recall

11) Which of the following is most accurate about interest rates in Canada? A) Charging a rate of three percent for a seven day payday loan is legal in Canada. B) As long as loan charges come in the form of fees, they are not included in interest rate calculations in Canada. C) Payday loan companies provide a necessary service and have permission to charge above the maximum loan rate in Canada. D) The maximum interest rate that can be legally charged on a consumer loan in Canada is 60 percent. Answer: D Diff: 2 Type: MC Categories: Personal Loans Financial Type: Qualitative Skill Type: Recall 12) Sue obtains a one year loan of $3000 based on an annual interest rate of 12 percent. What would be the monthly payment to pay it off in one year? A) $278 B) $280 C) $303 D) $266 Answer: D Diff: 3 Type: MC Categories: Personal Loans Financial Type: Quantitative Skill Type: Applied 13) What would be the real cost of borrowing in the following case? A home equity loan is advertised at three percent compounded monthly, however, there is a legal fee of $400 and appraisal fee of $450 to set up the house as collateral. If Sarah needs to borrow $20 000 for one year, at which time will be able to repay the full amount, what is the effective rate of borrowing the $20 000 for the year? A) 3.04% B) 7.29% C) 7.25% D) 4.25% Answer: B Diff: 3 Type: MC Categories: The Real Cost of Borrowing Financial Type: Quantitative Skill Type: Applied

14) What monthly payment (to the nearest dollar) would Dieter need to make on a with a nine percent interest rate compounded monthly and a three-year maturity? A) $303 B) $318 C) $329 D) $360 Answer: B Diff: 3 Type: MC Categories: Car Loans Financial Type: Quantitative Skill Type: Applied

loan

15) Tom needs a car to commute to work and has found a suitable Honda Civic from a dealer for $8000. He has $3000 saved for it and can afford a monthly payment up to $250. Which of the following is the best (lowest total cost) financing option for him? A) Make a $2500 deposit and take a two year loan with monthly payments of $241. B) Make a $3000 deposit and take a two year loan with monthly payments of $221. C) Make a $2000 deposit and take a three year loan with monthly payments of $185. D) Make a $1000 deposit and take a three year loan with monthly payments of $210. Answer: A Diff: 3 Type: MC Categories: Car Loans Financial Type: Quantitative Skill Type: Applied 16) Which would be the best loan offer? Loan A has a 9.5 percent rate calculated quarterly and Loan B has a 9.25 percent rate calculated monthly. A) The effective rate on Loan A is 9.84 percent and on Loan B is 9.92. percent. Therefore, Loan A is best. B) The effective rate on Loan A is 9.84 percent and on Loan B is 9.65 percent. Therefore, Loan B is best. C) Loan B is a lower interest rate, so it is the better choice. D) Loan A is compounded less frequently, so it would be the best option. Answer: B Diff: 3 Type: MC Categories: The Real Cost of Borrowing Financial Type: Quantitative Skill Type: Applied

17) Incorporating the use of credit into your financial plan requires understanding the correct use of different types of loans. Compare and contrast the positive and negative effects that credit cards and personal, home equity, and student loans may have on the success and failure of your financial plan. Answer: The student should demonstrate a complete understanding of each type of loan and its appropriate use, but the answers could vary widely. Some examples are: Credit card: high interest, should be paid off monthly, revolving-type uses. Personal loans: for the purchase of larger items with a fixed rate over a specific time and budgeted expense. Home equity line of credit: like a credit card, however, lower interest rate, available for purchases or investment opportunities if necessary or even debt consolidation. Student loans: similar to personal loans with two major advantages. Deferred interest until education completed, and interest tax credit on student loans. Paying interest of all kinds can be destructive to wealth unless borrowing is used for higher returning investments. Overextension of credit can ruin a financial plan by making budgets unmanageable. Education does not always translate into higher earnings but it is highly likely. Asset builder opportunities increase net worth. Positive things to use credit for are homes, investments, and other net-worth-increasing assets. Poor uses of credit include cars and other depreciating assets. Diff: 3 Type: ES Categories: Debt Management Financial Type: Qualitative Skill Type: Applied 18) If you apply for a payday loan of $1000 from a financial institution for 10 days, you pay back $1150. What is the cost of financing this payday loan? Answer: [(1150 -1000)/1000] × (365/10) = 547.5 percent Diff: 2 Type: ES Categories: Types of Financial Institutions Financial Type: Quantitative Skill Type: Applied Car Loans 1) If a buyer has limited capital, leasing a car will usually require lower monthly payments than a car loan. Answer: TRUE Diff: 2 Type: TF Categories: Car Loans Financial Type: Qualitative Skill Type: Applied

2) The amount that a car dealer pays to the manufacturer is known as the manufacturer's suggested invoice price. Answer: FALSE Diff: 1 Type: TF Categories: Car Loans Financial Type: Qualitative Skill Type: Recall 3) The car dealer may pay less than the invoice price for a car because the manufacturer may offer the car dealer sales incentives. Answer: TRUE Diff: 1 Type: TF Categories: Car Loans Financial Type: Qualitative Skill Type: Recall 4) A holdback is a percentage refund of the MSRP provided by the manufacturer to the dealer. Answer: TRUE Diff: 1 Type: TF Categories: Car Loans Financial Type: Qualitative Skill Type: Recall 5) When negotiating for a car, always negotiate based on the price and never based on what you are able to pay in monthly payments. Answer: TRUE Diff: 1 Type: TF Categories: Car Loans Financial Type: Qualitative Skill Type: Recall 6) Which of the following is most accurate about second mortgages? A) Most people have two mortgages on their homes. B) The primary mortgage is for the down payment and the secondary mortgage is the main mortgage. C) A home equity loan is commonly a second mortgage. D) Second mortgages are last resort financing. Answer: C Diff: 2 Type: MC Categories: Home Equity Loans Financial Type: Qualitative Skill Type: Recall

7) In making the purchase versus lease decision, it is important to remember that A) dealers may impose additional charges for leasing. B) leasing is less risky because you do not have equity. C) leasing is less expensive overall than purchasing. D) you won't be required to pay maintenance costs on the leased car. Answer: A Diff: 1 Type: MC Categories: Purchase Versus Lease Decision Financial Type: Qualitative Skill Type: Recall 8) The advantage of leasing over purchasing a vehicle is A) no deposit is required. B) lower monthly payments than for borrowing. C) there is less hassle than when purchasing a vehicle. D) there are no maintenance expenses. Answer: B Diff: 2 Type: MC Categories: Purchase Versus Lease Decision Financial Type: Qualitative Skill Type: Recall 9) What would be the total cost of leasing a vehicle for four years that requires a security deposit of $1000 (which would be withdrawn from your investment portfolio, which earns 8% per year, compounded annually), has monthly lease payments of $500, and has a kilometre restriction of with excess kilometres resulting in a charge of 10 cents per kilometre? (Assume that, over the life of the lease, you exceed the kilometre limit by 8000.) A) $24 420 B) $24 360 C) $24 800 D) $25 160 Answer: D Diff: 3 Type: MC Categories: Purchase Versus Lease Decision Financial Type: Quantitative Skill Type: Applied

10) What would be your monthly car payment on a $35 000 car that you are able to finance for 4 years at 7% interest compounded monthly? The car dealership is willing to give you $5000 credit for your trade-in. A) $718.39 B) $715.40 C) $714.22 D) $707.07 Answer: A Diff: 2 Type: MC Categories: Car Loans Financial Type: Quantitative Skill Type: Applied 11) Approximately how many months of car payments would be remaining on a car loan where the monthly car payment is $375 and the outstanding balance on the car loan is $9,800? The car was financed at an interest rate of 8%, compounded monthly. A) 26 months B) 29 months C) 32 months D) 24 months Answer: B Diff: 3 Type: MC Categories: Car Loans Financial Type: Quantitative Skill Type: Applied 12) What is the cost of financing a leased car that has a $45 000 MSRP when the monthly lease payment is $425 and the car may be purchased at the end of the 60-month lease with a final payment of $7500? A) 14.25% B) 9.17% C) 9.57% D) 13.35% Answer: C Diff: 3 Type: MC Categories: Car Loans Financial Type: Quantitative Skill Type: Applied

13) Discuss six of the choices to be made when making a decision between leasing and buying a car with a personal loan. Answer: The total cost of the lease versus the total cost of the loan. Cash flow available Down payment available Security deposits The resale value versus the buy back on the lease at maturity Extra kilometre charges Trade-in considerations Opportunity cost on down payments Early escape from a lease versus a loan The car price when leasing versus buying Any admin charges that apply only to leasing versus buying Benefits of ownership Students might discuss tax considerations for self-employed — deduction of lease payments versus interest costs. Diff: 2 Type: ES Categories: Purchase Versus Lease Decision Financial Type: Qualitative Skill Type: Applied 14) List and describe the criteria you should consider before making any car buying decision. Answer: Answers will vary, but here is a selection of possibilities. Personal preference - determine the type of car you need, which may be different than the car you want. Price - stay within your budget and consider the cost of insurance, maintenance, and gas. Condition - have a qualified mechanic evaluate the condition of any used car you are about to purchase. Insurance - some cars have higher insurance because they are difficult to repair after accidents, are more expensive, or are common targets of theft. Resale value - some cars have higher resale value (e.g. Acura vs. Honda). Repair expenses - some cars have higher repair bills. Financing rate - prices and financing rates for the same car may differ among car dealerships. Diff: 1 Type: ES Categories: Car Loans Financial Type: Qualitative Skill Type: Recall

Student Loans 1) If you declare bankruptcy within seven years of ceasing to be a student, you may have your student loans forgiven. Answer: FALSE Diff: 1 Type: TF Categories: Student Loans Financial Type: Qualitative Skill Type: Applied 2) The greatest benefit of student loans is that the interest is tax deductible. Answer: FALSE Diff: 2 Type: TF Categories: Student Loans Financial Type: Qualitative Skill Type: Recall 3) The amount that a student can borrow each year is based on the student's assessed need. Answer: TRUE Diff: 1 Type: TF Categories: Student Loans Financial Type: Qualitative Skill Type: Applied 4) Which of the following is a true statement about student loans? A) The Federal Government is responsible for all student loans. B) Loan limits are higher for students who are dependants. C) The repayment schedule is deferred. D) Students who declare bankruptcy within seven years of graduation may have their loans forgiven. Answer: C Diff: 2 Type: MC Categories: Student Loans Financial Type: Qualitative Skill Type: Recall 5) Which of the following is a true statement about student loans? A) Loan limits are lower for students who are dependants. B) Full-time students must make interest payments while studying. C) You can always claim a tax deduction for any loan that you consider a student loan. D) For a loan to be considered a student loan, the lender must be the federal government. Answer: A Diff: 2 Type: MC Categories: Student Loans Financial Type: Qualitative Skill Type: Recall 31 Copyright © 2022 Pearson Canada Inc.

Debt Management 1) If not objected to by the creditors, a consumer proposal could enable someone with consumer debt to pay off of it and have it removed from their credit bureau report. Answer: TRUE Diff: 3 Type: TF Categories: Debt Management Financial Type: Qualitative Skill Type: Applied

2) Use your budget to see if you have any financial assets that can be used to pay down your debts immediately. Answer: FALSE Diff: 2 Type: TF Categories: Debt Management Financial Type: Qualitative Skill Type: Recall 3) A credit repair service company can help you to remove late payments and/or loan defaults from your credit report. Answer: FALSE Diff: 1 Type: TF Categories: Debt Management Financial Type: Qualitative Skill Type: Recall 4) A proposal to creditors is made by an insolvent debtor having difficulty meeting payments. Which of the following is true? A) The proposal must be rejected by creditors within 45 days, or it will be deemed to be accepted. B) The history will remain on the credit bureau report for three years after terms have been met. C) The proposal must be for an amount over $50 000. D) The proposal must require at least fifty percent of the total debt to be repaid. Answer: A Diff: 2 Type: MC Categories: Debt Management Financial Type: Qualitative Skill Type: Recall

5) A person can be declared insolvent if A) he or she has more debts than assets. B) his or her spouse is insolvent as well. C) he or she owes $1000 and is unable to pay. D) his or her monthly payments exceed $1000. Answer: C Diff: 1 Type: MC Categories: Debt Management Financial Type: Qualitative Skill Type: Recall 6) When managing your debt, you can reassess your personal cash flow statement and take all of the following steps except: A) Spend as little as possible. B) Ensure that the return on your investments is greater than the interest rate being charged on your debt. C) Consider how to obtain additional funds to pay off your balance. D) Obtain a debt consolidation loan. Answer: B Diff: 1 Type: MC Categories: Debt Management Financial Type: Qualitative Skill Type: Recall 7) Which of the following is a true statement about bankruptcy? A) You are deemed to be insolvent if you owe at least $10 000 and are unable to pay debts as they come due. B) Your property is given to a bankruptcy lawyer. C) Unsecured creditors will not be able to take legal steps against you to recover their debts. D) All of your assets will be sold an d the money obtained will be distributed to your creditors on a pro rata basis. Answer: C Diff: 2 Type: MC Categories: Debt Management Financial Type: Qualitative Skill Type: Recall

8) Illustrate the cost implications of using a credit card that has an interest rate of 21%, compounded daily, versus a line of credit that has an interest rate of 5%, compounded monthly, to fund a $10 000 purchase. In one case, assume you only have $250 per month you can allocate to paying off the debt. In the second case assume you need to get the debt paid off in five years. Answer: Credit card paid off with $250 per month payments: P/Y = 12, C/Y = 365, PV = $10 000, FV = $0, I/Y = 21, PMT = -$250, CPT N = 69.96 months, or 5.83 years to pay off and total interest $7491. Line of Credit paid off with $250 per month payments: P/Y = 12, C/Y = 12, PV = $10 000, FV = $0, I/Y = 5, PMT = -$250, CPT N = 43.85 months, or 3.65 years to pay off and total interest $962. Credit card paid off in five years: P/Y = 12, C/Y = 365, N = 60, PV = $10 000, FV = $0, I/Y = 21, CPT PMT = $271.54 per month required to pay off and total interest $6292. Line of Credit paid off in five years: P/Y = 12, C/Y = 12, N = 60, PV = $10 000, FV = $0, I/Y = 5, CPT PMT = $188.71 per month required to pay off and total interest $1323. The credit card costs thousands of dollars more to pay off in both cases. Diff: 3 Type: ES Categories: Debt Management Financial Type: Quantitative Skill Type: Applied 9) Beth wants to borrow $18 000 for five years and she has a choice of two loans. One carries a compound annual rate of 10% and the other a 9.5% rate compounded semi-annually. Which is her best choice? Calculate the answer by comparing the effective annual rates of interest. Answer: Math calculations are required to compute the effective annual rate of 9.5 percent calculated semi-annually to compare it to the 10 percent annual rate. There are several methods, but here are two solutions. Calculator keystrokes 9.5; second function key; Effective key; 2 = 9.72, or you can calculate by using the formula and calculator. The formula for effective rate EFF = (1 + (i / n))n - 1. Substituting for the formula: Effective rate is (1 + (0.095/2))squared -1 = 1.0475 squared -1 = 0.0972 or 9.72 percent. Keystrokes are 1.0475 2nd function key to the power 2 = 1.09725 - 1 = 9.72. Diff: 3 Type: ES Categories: Debt Management Financial Type: Quantitative Skill Type: Applied

Identity Theft: A Threat to Your Credit 1) If you are a victim of identity theft, you may be turned down for employment as a result of incorrect background information. Answer: TRUE Diff: 2 Type: TF Categories: Identity Theft: A Threat to Your Credit Financial Type: Qualitative Skill Type: Applied 2) The worst outcome from identity theft is that you could be responsible for charges someone made fraudulently on your credit card. Answer: FALSE Diff: 2 Type: TF Categories: Identity Theft: A Threat to Your Credit Financial Type: Qualitative Skill Type: Applied 3) With respect to identity theft, the criminal is only trying to attempt to acquire money, goods or services. Answer: FALSE Diff: 1 Type: TF Categories: Identity Theft: A Threat to Your Credit Financial Type: Qualitative Skill Type: Recall 4) Which of the following is the most serious threat from identity theft? A) Criminal activities attributed to the victim B) The financial cost to society C) Loss of access to credit D) Credit card charges made by the perpetrator Answer: A Diff: 3 Type: MC Categories: Identity Theft: A Threat to Your Credit Financial Type: Qualitative Skill Type: Applied

5) If a person obtains your credit card number by standing close enough to you to either see your credit card or hear you speak the number during a telephone call, he or she is A) shoulder surfing. B) shimming. C) pretexting. D) skimming. Answer: A Diff: 2 Type: MC Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall 6) Identity thieves that obtain your information from the magnetic strip on your credit card are using a technique known as A) pharming. B) phishing. C) pretexting. D) skimming. Answer: D Diff: 2 Type: MC Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall 7) Posing as an employee of a brokerage firm to obtain information to allegedly update your account information is an example of A) phishing. B) shimming. C) pretexting. D) skimming. Answer: C Diff: 2 Type: MC Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall 8) Using email messages from a supposedly legitimate source to obtain account information for the purpose of identity theft is referred to as A) pharming. B) phishing. C) shimming. D) trolling. Answer: B Diff: 2 Type: MC Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall 36 Copyright © 2022 Pearson Canada Inc.

9) Manipulating email viruses and host files to redirect users from legitimate commercial websites to bogus websites to obtain log-in names and passwords is referred to as A) pharming. B) phishing. C) skimming. D) trolling. Answer: A Diff: 2 Type: MC Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall 10) Which of the following is true about credit bureaus in Canada? A) There are two federally appointed credit bureaus in Canada. B) It is impossible to have a better credit score at one bureau than another. C) Lenders may access your credit information without your permission. D) Lenders may use more than one credit bureau for information. Answer: D Diff: 3 Type: MC Categories: Credit Bureaus Financial Type: Qualitative Skill Type: Recall Identity Theft Tactics 1) Posing as an employee of a financial institution to obtain information for purposes of identity theft is an example of pretexting. Answer: TRUE Diff: 2 Type: TF Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall 2) Identity theft is only conducted by individuals who do not have legitimate access to your information. Answer: FALSE Diff: 2 Type: TF Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall

3) Inserting a device into the slot of an ABM or card reader that can read the information on an inserted card is an example of A) phishing. B) shimming. C) pretexting. D) skimming. Answer: B Diff: 2 Type: MC Categories: Identity Theft Tactics Financial Type: Qualitative Skill Type: Recall Protecting Against Identity Theft 1) If you receive a phone call that seeks to verify or update personal information, you should A) ask several questions of the solicitor to verify his or her authenticity. B) ask to speak to a supervisor. C) obtain his or her name and address in case you need to contact him or her in the future. D) never give out any personal information to someone you do not know. Answer: D Diff: 2 Type: MC Categories: Protecting Against Identity Theft Financial Type: Qualitative Skill Type: Applied 2) Which of the following statements is true about how you can safeguard your personal information? A) Don't share your social insurance number (SIN) unless it is absolutely necessary. B) Check your credit report at least once every five years. C) Use a regular mailbox to receive mail. D) Carry only a wallet sized birth certificate in your wallet as opposed to your full size birth certificate. Answer: A Diff: 1 Type: MC Categories: Protecting Against Identity Theft Financial Type: Qualitative Skill Type: Recall

3) Which of the following statements is true about how you can safeguard your personal information? A) Reply to suspicious emails by telling them to not send you any more emails. B) Update your software annually. C) Look for the padlock symbol when you are making purchases online. D) Put your personal computer in sleep mode when you are not using it. Answer: C Diff: 1 Type: MC Categories: Protecting Against Identity Theft Financial Type: Qualitative Skill Type: Recall 4) Discuss at least four ways in which you can protect yourself from identity theft. Answer: Students may include other recommendations; however, these are the most common. A) Go through your wallet or billfold and remove anything that contains your social insurance number as well as rarely used credit cards; B) maintain a list of all items in your wallet and toll-free numbers that can be used to make notification in the event of a loss; C) purchase/use a shredder for all identifying information; D) install a locked mailbox or rent a P.O. box; E) have your name removed from local directories. F) Clear your browser history every time you access financial information from your computer. Diff: 2 Type: ES Categories: Protecting Against Identity Theft Financial Type: Qualitative Skill Type: Recall Response to Identity Theft 1) What does the Office of the Privacy Commissioner of Canada recommend doing if you suspect you are a victim of identity theft. A) Contact your bank and credit card companies and notify the credit reporting companies. B) File a lawsuit against the location or merchant where the theft occurred. C) No action is necessary because you aren't responsible for any of the charges. D) Close all your bank accounts, cancel all your credit cards, and start using cash only. Answer: A Diff: 2 Type: MC Categories: Response to Identity Theft Financial Type: Qualitative Skill Type: Recall

Personal Finance, Canadian Ed., 5e (Madura) Chapter 7 - Purchasing and Financing a Home Selecting a Home 1) The purchase of a home represents a potential risk if you need to move quickly and the home does not appreciate rapidly in value. Answer: TRUE Diff: 1 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 2) It is possible to sell a house without paying a commission. Answer: TRUE Diff: 1 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 3) Online realtor services are more convenient, but usually charge higher commissions than traditional full-service real estate companies. Answer: FALSE Diff: 1 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 4) Most individuals pay for a home with a down payment of five percent or less and then obtain a mortgage to finance the rest. Answer: FALSE Diff: 1 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 5) It is a good idea not to disclose defects of the home you are trying to sell, since these will adversely affect your selling price or your ability to sell your home quickly. Answer: FALSE Diff: 2 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall

6) If the average price of homes you are considering went from $300 000 to $330 000 last year, it would make sense to estimate that they should be worth around $439 000 in three more years. Answer: FALSE Diff: 3 Type: TF Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 7) To speed up the home-buying process, you should first give a verbal offer to see if the seller is willing to accept the price you are willing to offer. Answer: FALSE Diff: 3 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 8) The terms duplex and semi-detached refer to the same type of property. Answer: FALSE Diff: 1 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 9) In order to be guaranteed to be approved for a mortgage, you should first acquire a pre-approval certificate. Answer: FALSE Diff: 2 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 10) In order to qualify for a mortgage you must conform with both the gross debt service ratio and total debt service ratio. Answer: FALSE Diff: 2 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 11) Jane's monthly gross income is $4000 and her debt payments are $400 per month. Given a GDS limit of 32 percent and TDS limit of 40 percent, she will be able to qualify for mortgage-related debt payments of $1200 per month. Answer: TRUE Diff: 3 Type: TF Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 2 Copyright © 2022 Pearson Canada Inc.

12) Gross debt service ratio refers to a calculation of all mortgage-related financing and must not exceed 32 percent of total household income. Answer: TRUE Diff: 1 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 13) Total mortgage financing of $968 per month, and monthly debt payments of $530, given total monthly household income of $3457 results in a gross debt service ratio of 28 percent. Answer: FALSE Diff: 3 Type: TF Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 14) Sharaz has gross household income of $3800 and wants to qualify for total monthly mortgage financing of $1330. Based on the gross debt service ratio, she should be approved. Answer: TRUE Diff: 3 Type: TF Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 15) The terms "house" and "home" have the same meaning. Answer: FALSE Diff: 1 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 16) The mortgage stress test states that the qualifying rate for a mortgage loan is the higher of either the posted Bank of Canada five-year fixed mortgage rate, or the rate offered by your lender plus 2%. Answer: FALSE Diff: 3 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall

17) The qualifying rate for a mortgage loan is usually the same as the interest rate at which your mortgage will be approved. Answer: FALSE Diff: 2 Type: TF Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 18) What should be the first step in the home-buying process? A) Determine the price range for houses in your target area. B) Determine how much you can afford to pay monthly for a mortgage. C) Compare the costs of buying versus renting. D) Interview three realtors. Answer: B Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 19) Which of the following is true about condominiums? A) The purchaser owns the land on which the condominium is built. B) The maintenance fees of common areas are shared. C) Purchasing a condominium is a simpler decision than purchasing a house. D) Purchasing a condominium is very different than purchasing a house. Answer: B Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 20) Which of the following costs associated with home ownership is hardest to budget for? A) Insurance B) Taxes C) Repairs D) Mortgage payments Answer: C Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall

21) How are most home purchases initially funded? A) With a vendor take-back mortgage B) With a 5 to 20 percent down payment and a mortgage C) With a 0 to 5 percent down payment and a mortgage D) With a 25 to 50 percent down payment and a mortgage Answer: B Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 22) What is the best advice regarding mortgage financing? A) Get a pre-approval certificate to guarantee your mortgage approval. B) Let an expert choose the type and length of mortgage you will need. C) Ensure the mortgage payments do not absorb all your excess income. D) Select the maximum payments you can afford based on your cash flow. Answer: C Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 23) Which of the following is the best advice in determining how large a mortgage you can afford? A) Get the most you can borrow to get the home you want B) Whatever the banks will offer based on your TDS and GDS ratios C) Less than what your cash flow indicates you can afford D) The maximum that your cash flow indicates you can afford Answer: C Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 24) If you have a lot of debt such as a car loan, student loan, line of credit and credit card balances which you carry from month to month, which will be most relevant in determining how much mortgage you can afford? A) GDS ratio B) Both TDS and GDS equally C) TDS ratio D) HBP Answer: C Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 5 Copyright © 2022 Pearson Canada Inc.

25) Principal, interest, and property taxes on a mortgage are $1209, with heating costs of $68 and condo fees of $180 monthly. The borrower also has a student loan with $100 monthly payments. If the gross debt service ratio required is 32 percent, what will be the lowest monthly income that will qualify for the mortgage financing? A) $4272 B) $4553 C) $3991 D) $4584 Answer: A Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 26) The total household income available is $3963. Mortgage payments including taxes, principal, and interest are $1189. In addition, there are condo fees of $126 and heating costs of $56 monthly and a car lease of $241. What is the gross debt service ratio? A) 40.7 percent B) 33.0 percent C) 39.1 percent D) 34.6 percent Answer: B Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 27) The total household income available is $4032. Mortgage payments including taxes, principal, and interest are $1174. In addition, there are condo fees of $150, heating costs of $65 monthly, a student loan payment of $100 and a car lease of $141. What is the total debt service ratio? A) 38.6 percent B) 35.1 percent C) 36.1 percent D) 40.4 percent Answer: A Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied

28) Martina and Anton are attempting to qualify for total mortgage financing of $1486, heating costs of $68, and they have a car loan payment of $346. What minimum gross monthly income will they need to qualify for both GDS ratio of 32 percent and TDS ratio of 40 percent? A) $5938 B) $4750 C) $4856 D) $4644 Answer: C Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 29) What is the purpose of getting a pre-approval certificate from a financial institution? A) To guarantee you a mortgage interest rate valid for 30 days B) To provide you with a guideline on how large a mortgage you can afford C) To guarantee funding so you can make an offer on a house D) To guarantee you will be approved for a mortgage Answer: B Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 30) Which of the following is true about the Home Buyers' Plan? A) It's a government program which enables first time home owners with less than five percent down payment to purchase a home using CMHC insurance. B) It's a government program exempting Canadian first time home buyers in certain provinces from land transfer tax. C) It's a government program allowing first time home buyers to withdraw from their RRSPs tax free as long as paid back within ten years. D) It's a government program allowing first time home buyers to withdraw from their RRSPs tax free as long as paid back within fifteen years. Answer: D Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall

31) Which of the following is most accurate in a case where a seller neglects to disclose a defect that affects the market value of the home they are selling? A) It is morally repugnant, but commonly done and there is no legal recourse. B) It is morally wrong, but is legal due to caveat emptor. C) It is morally repugnant, and the seller could be charged for criminal negligence. D) It is morally wrong, and the seller could be sued for misrepresentation. Answer: D Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 32) If you make an offer to the seller through the real estate broker, the following may happen except A) the seller may accept your offer. B) the seller may reject your offer. C) the seller may reject your offer and suggest that you revise the price. D) the seller may accept your offer at and suggest that you revise the price. Answer: D Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 33) The lawyer normally will look after services for you when purchasing a home except for the A) legal fees and disbursements. B) home inspection fee. C) interest adjustment. D) title insurance. Answer: B Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied

34) Mohammed and Parm are recently married and neither of them has ever owned a home. They wish to use the Home Buyers' Plan (HBP) to make their down payment on their first home. If they each have in their RRSPs, how much can they access for their down payment through the HBP? A) $100 000 B) $40 000 C) $25 000 D) $70 000 Answer: D Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 35) Which of the following payment options would result in the lowest amount of interest paid on a mortgage? A) Accelerated biweekly B) Biweekly C) Weekly D) Semi-monthly Answer: A Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 36) What is the most important factor in determining the price of a home? A) An estimate of the future value of the home for resale B) The market analysis to find the per foot price of other homes nearby C) The highest price you are willing to pay that the seller will accept D) The quality of the structure and materials Answer: C Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 37) Buying a home instead of a condo offers which of the following advantages? A) A yard provides personal space. B) Home expenses are more predictable. C) Home insurance is less expensive than condo insurance. D) Condo fees can be considerably more than the costs associated with owning a home. Answer: A Diff: 1 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 9 Copyright © 2022 Pearson Canada Inc.

38) Which of the following is the most likely disadvantage of buying a home? A) may be an insufficient level of privacy B) limited parking space C) renovations must be pre-approved D) maintenance costs Answer: D Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Recall 39) Common sources for a down payment include all of the following except A) your personal savings. B) the money you receive from the sale of another property. C) the money you receive from a loan. D) your TFSA. Answer: C Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 40) Which of the following individuals would qualify as a first-time home buyer? A) Carla, who owned and occupied a home up until the end of 2019, and would like to make a home buyers' plan withdrawal on December 1st, 2020 B) Craig, who owned and occupied a home up until the end of 2017, and would like to make a home buyers' plan withdrawal on October 1st, 2020 C) Corey, who owned and occupied a home up until the end of 2015, and would like to make a home buyers' plan withdrawal on October 1st, 2020 D) Christine, who owned and occupied a home up until the end of 2016, and would like to make a home buyers' plan withdrawal on November 1st, 2020 Answer: C Diff: 3 Type: MC Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied

41) When considering the factors involved in purchasing a home, which of the following statements would be least helpful in helping you make a good decision? A) Obtain a second job in order to be able to afford a higher mortgage payment. B) Identify homes located in a convenient area relative to your work or travel time to other activities. C) Even if you do not have children, find a home that is close to a good school system. D) Purchase a home that is in a desirable location because the resale value of a home depends greatly on its location. Answer: A Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied 42) What are the annual property taxes on a $400 000 house in a municipality that has a mill rate of 8.2? A) $1,640 B) $328 C) $3,280 D) $273 Answer: C Diff: 2 Type: MC Categories: Selecting a Home Financial Type: Quantitative Skill Type: Applied 43) Describe some of the advantages and disadvantages of selling your home yourself instead of hiring a realtor. Answer: Advantages: Save up to 7 percent of your home sale price on the first $100 000 and 3 percent on the remainder; you schedule the appointments. Disadvantages: No realtor expertise; not as much marketing exposure; no contract and advertising experience; requires your time. Diff: 2 Type: ES Categories: Selecting a Home Financial Type: Qualitative Skill Type: Applied

Transaction Costs of Purchasing a Home 1) If Jane had a total of $30 000 available for the purchase and transactions expenses to buy a condo, and an accepted offer of $150 000 for the property, she would be able to get a conventional mortgage. Answer: FALSE Diff: 3 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 2) In addition to closing costs, realtor fees of three to seven percent are charged when you buy a home. Answer: FALSE Diff: 2 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 3) A variable-rate mortgage starts with higher payments, which decrease as the mortgage is paid off. Answer: FALSE Diff: 2 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 4) Malcolm has a down payment of $90 000 on a house valued at $400 000. He might be better off to borrow an additional $10 000 on a personal loan to avoid the high ratio insurance premium. Answer: FALSE Diff: 2 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 5) It is impossible to finance a home purchase worth $510 000 with only $25 500 to put down. Answer: FALSE Diff: 3 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied

6) A house valued at $388 000 with a down payment of $85 000 will result in an extra charge for a high ratio mortgage. Answer: FALSE Diff: 3 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 7) An interest adjustment occurs when there is a difference between the date on which you take possession of your home and the date from which your lender calculates your first mortgage payment. Answer: TRUE Diff: 2 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Applied 8) The maximum amortization period for a high ratio mortgage is 25 years. Answer: TRUE Diff: 2 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 9) Loan protection life and disability insurance protects the lending institution against financial loss as a result of injury, illness, or death of the borrower. Answer: TRUE Diff: 2 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 10) A high ratio mortgage refers to a mortgage where the down payment is less than 10% of the home's appraised value. Answer: FALSE Diff: 1 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 11) Due to the high interest rates charged, a vendor take-back mortgage is generally a worse option than a high ratio mortgage. Answer: FALSE Diff: 1 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 13 Copyright © 2022 Pearson Canada Inc.

12) A land transfer tax is charged in all provinces, except Alberta. Answer: FALSE Diff: 1 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 13) Your are normally required to pay GST/HST on the purchase of any home. Answer: FALSE Diff: 1 Type: TF Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 14) Which of the following is an advantage of using online realtor services? A) Easier access to qualified realtors B) Enables you to shop online and save time C) Increases your chances of selling a house by over 20 percent D) Higher price for houses sold or lower prices for houses bought Answer: B Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 15) Why is a conventional mortgage a good idea for a buyer? A) You will not need to purchase CMHC insurance. B) You will not need to purchase life insurance. C) You will get a better interest rate. D) You will not need to purchase life insurance or CMHC insurance. Answer: A Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 16) Which of the following is true regarding conventional mortgages? A) They require a down payment of at least twenty-five percent. B) They require a down payment of at least twenty percent. C) They receive more favourable interest rates for the buyer. D) They are a form of closed mortgage. Answer: B Diff: 3 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Applied 14 Copyright © 2022 Pearson Canada Inc.

17) When selling a home, which of the following costs will you likely incur? A) Loan application fees B) Realtor's commission C) Insurance premiums D) Appraisal fees Answer: B Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 18) When purchasing a home, which of the following costs will you incur? A) Finder's fee B) Realtor's commission C) Tax arrears payments D) Appraisal fee Answer: D Diff: 1 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 19) A house is sold for $300 000 and appraised for $285 000. What down payment will be needed to qualify for a conventional mortgage? A) $60 000 B) $57 000 C) $71 250 D) $72 000 Answer: B Diff: 3 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 20) A house for sale is listed at $310 000 and you manage to win the competitive bid with an offer of $312 000. The appraisal indicates the value at $295 000. What will be the conventional mortgage loan amount approved by the bank? A) $248 000 B) $221 250 C) $249 600 D) $236 000 Answer: D Diff: 3 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 15 Copyright © 2022 Pearson Canada Inc.

21) Lenders require Canada Mortgage and Housing Corporation insurance on high ratio mortgages. What is the primary purpose of this insurance? A) Life insurance for the borrowers to make sure they can pay off the house if one of them dies B) Disability insurance for the borrowers to make sure they can pay off the house if one of them can no longer work C) Insurance for the borrower in the event of foreclosure to compensate them for the full price they paid for the home D) Insurance for the lender to protect their collateral in case the borrower defaults and the home has declined in value Answer: D Diff: 3 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Applied 22) A house is appraised at $398 000 and you have a down payment of . CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent, 2.40 percent; up to and including 85 percent, 2.80 percent; up to and including 90 percent, 3.10 percent; up to and including 95 percent 4.00 percent. What will be the approximate total amount of the mortgage if the CMHC fee is included in the mortgage? A) $371 712 B) $373 164 C) $377 520 D) $374 253 Answer: D Diff: 3 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 23) Mertyl is interested in buying a house worth $335 000 and has a down payment of . CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent, 2.40 percent; up to 85 percent, 2.80 percent; up to 90 percent, 3.10 percent; up to 95 percent 4.00 percent. What will be the CMHC insurance premium? A) $9145 B) $8260 C) $7080 D) $11 800 Answer: A Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied

24) Chuck obtained a mortgage of $315 000 to finance a $420 000 home. The title insurance will be $400, appraisal fee is $500, land transfer tax is one percent of the value of the property, legal fees are $900, and he will pay $900 to the movers and has planned to send $6000 on renovations. How much are his closing costs? A) $1800 B) $7500 C) $4200 D) $6000 Answer: D Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied 25) Which of the following is not one of the closing costs in purchasing a home? A) Appraisal fee B) Home inspection fee C) Prepaid property tax D) Moving costs Answer: D Diff: 1 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Applied 26) The highest current CMHC premium is A) 4.00%. B) 4.50%. C) 5.00%. D) 5.50%. Answer: A Diff: 1 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 27) In most cases, a First Nation will rent a home to its individual members and retain the mortgage since an individual member A) is not interested in owning the home. B) is not interested in owning the land. C) can only mortgage and own the home, not the land on which it's situated. D) can mortgage and own the home and the land on which it's situated. Answer: C Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 17 Copyright © 2022 Pearson Canada Inc.

28) Which of the following organizations administers housing programs in off reserve urban areas for First Nations people? A) Aboriginal Capital Corporation B) Metis Urban Housing Corporation C) Nunavut Housing Corporation D) First Nations Market Housing Fund Answer: B Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 29) An estoppel certificate will provide you with all of the following information except A) whether all condo fees have been paid and when those fees are normally due. B) how much interest is outstanding if there any outstanding condo fees. C) the amount of any special assessments and when the payment is due. D) the location of visible improvements relative to property boundaries. Answer: D Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall 30) If you are buying a house and the current homeowner does not have an up-to-date real property report, what should you do if you want to buy the house? A) Don't buy the house unless you get an up-to-date real property report B) Have your lawyer talk to their lawyer C) Purchase title insurance D) Purchase homeowner's insurance Answer: C Diff: 2 Type: MC Categories: Transaction Costs of Purchasing a Home Financial Type: Qualitative Skill Type: Recall

31) Peter and Mary make a $25 000 down payment on a $400 000 home. CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent, 2.40 percent; up to 85 percent, 2.80 percent; up to 90 percent, 3.10 percent; up to 95 percent 4.00 percent. What will be the CMHC insurance premium? Illustrate the calculation on the loan insurance premium that Peter and Mary have to pay. Answer: Loan to value ratio: $375 000/400 000 = 93.75 % Their loan is in the 90 - 95% loan to value ratio Therefore they need to pay CMHC premium of 4.00% (400 000 - 25 000) × 4.00 percent = $15 000 Diff: 2 Type: ES Categories: Transaction Costs of Purchasing a Home Financial Type: Quantitative Skill Type: Applied Mortgage Options 1) For a 25-year mortgage of $300 000 with monthly payments of $1745 and interest rate of five percent compounded semi-annually, the amount of principle paid off over five years would be approximately . Answer: TRUE Diff: 3 Type: TF Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied 2) The interest you would pay on a $200 000 mortgage, amortized over 25 years, with an interest rate of six percent compounded semi-annually, would be $300 000. Answer: FALSE Diff: 3 Type: TF Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied

3) In choosing an open mortgage over a closed mortgage, you should consider the likelihood of being able to prepay principal to make up for the higher interest rate on the open mortgage. Answer: TRUE Diff: 2 Type: TF Categories: Mortgage Options Financial Type: Qualitative Skill Type: Recall 4) A fixed-rate mortgage will have a set amount applied to the principal with each monthly payment. Answer: FALSE Diff: 1 Type: TF Categories: Mortgage Options Financial Type: Qualitative Skill Type: Recall 5) A 15-year mortgage compared to a 25-year mortgage has A) higher total principal payments. B) lower monthly payments. C) higher total payments. D) lower total payments. Answer: D Diff: 2 Type: MC Categories: Mortgage Options Financial Type: Qualitative Skill Type: Applied 6) Ianna has found a fixed rate mortgage for $300 000 at four percent interest amortized over 25 years. Her payment will be $1578 per month. How much would her payment be if she wanted to amortize the mortgage over 15 years? A) $2219 B) $1733 C) $2214 D) $1711 Answer: C Diff: 3 Type: MC Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied

7) If Adam's house was purchased for $280 000 five years ago and is worth now, and his mortgage was $224 000 and amortized over 25 years, at four percent interest, compounded semi-annually, what is his equity in his house now? (To the nearest $1000) A) $101 000 B) $72 000 C) $85 000 D) Not enough information given to answer this Answer: B Diff: 3 Type: MC Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied 8) Making extra mortgage payments does which of the following? A) Reduces the payment amount B) Reduces the length of the loan C) Increases total amount paid D) Increases cash flow Answer: B Diff: 2 Type: MC Categories: Mortgage Options Financial Type: Qualitative Skill Type: Applied 9) Which of the following options regarding a $200 000 mortgage, compounded semi-annually requires the lowest total interest payment? A) A 4.0 percent interest rate, paid monthly and amortized over 15 years B) A 3.5 percent interest rate, paid monthly and amortized over 20 years C) A 3.5 percent interest rate, paid biweekly and amortized over 18 years D) A 3.25 percent interest rate, paid monthly and amortized over 22 years Answer: A Diff: 3 Type: MC Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied 10) Which would be the best mortgage option if you anticipate an inheritance in the next year or two? A) A one-year closed fixed-rate mortgage B) A closed convertible five-year VRM C) An open variable-rate mortgage D) A closed two-year VRM Answer: C Diff: 2 Type: MC Categories: Mortgage Options Financial Type: Qualitative Skill Type: Applied 21 Copyright © 2022 Pearson Canada Inc.

11) For someone who has a $300 000 mortgage, at an interest rate of 4.3 percent, which mortgage would be the best choice for increasing one's net worth? A) 15-year amortization with monthly payments B) 25-year amortization with accelerated biweekly payments C) 15-year amortization with semi-monthly payments D) 25-year amortization with weekly payments Answer: B Diff: 3 Type: MC Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied 12) Which mortgage option is best in the following scenario? The Jones are purchasing their first home for $450 000 and financing with a $360 000 mortgage. They expect interest rates to stay the same for the next five years and have no prospects for any increase in their incomes. The prime rate is three percent. A) A five-year closed mortgage at four and a half percent B) A four-year closed mortgage at four and a half percent C) A five-year open VRM at prime plus two percent D) A two-year open convertible VRM at prime plus two percent Answer: A Diff: 2 Type: MC Categories: Mortgage Options Financial Type: Qualitative Skill Type: Applied 13) For a $72 000 mortgage at nine percent, the monthly payments would be $730 for a 15-year mortgage and $579 for a 30-year mortgage. What would be the expected total savings in interest by taking a 15-year mortgage? A) $27 180 B) $54 360 C) $77 040 D) $131 000 Answer: C Diff: 2 Type: MC Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied

14) Which payment frequency, all else being equal, will generally save you the most interest over the life of your mortgage? A) Semi-monthly B) Biweekly C) Accelerated biweekly D) Weekly Answer: C Diff: 2 Type: MC Categories: Mortgage Options Financial Type: Qualitative Skill Type: Recall 15) Paying off an existing mortgage with a new mortgage that has a lower interest rate is referred to as A) mortgage replacement. B) mortgage substitution. C) mortgage refinancing. D) mortgage modification. Answer: C Diff: 2 Type: MC Categories: Mortgage Options Financial Type: Qualitative Skill Type: Recall 16) What is the bi-weekly payment associated with a $350 0000 mortgage amortized over 25 years when the mortgage interest rate is 4 percent compounded semi-annually? A) $1,841.07 B) $920.54 C) $460.27 D) $849.72 Answer: D Diff: 3 Type: MC Categories: Mortgage Options Financial Type: Quantitative Skill Type: Applied Characteristics of a Fixed-Rate Mortgage 1) Generally, fixed-rate mortgages are preferred when interest rates are expected to rise. Answer: TRUE Diff: 1 Type: TF Categories: Fixed Rate Mortgages Financial Type: Qualitative Skill Type: Recall

2) An amortization schedule displays all of the following except the A) principal portion of the payment. B) interest portion of the payment. C) increase in equity. D) beginning and ending balances. Answer: C Diff: 1 Type: MC Categories: Fixed Rate Mortgages Financial Type: Qualitative Skill Type: Recall Characteristics of a Variable-Rate Mortgage 1) A convertible mortgage feature may be available on variable rate mortgages or on long-term fixed-rate closed mortgages. Answer: FALSE Diff: 2 Type: TF Categories: Variable Rate Mortgages Financial Type: Qualitative Skill Type: Recall 2) The interest rate used to determine the variable rate that banks charge their customers is known as the prime lending rate. Answer: TRUE Diff: 1 Type: TF Categories: Variable Rate Mortgages Financial Type: Qualitative Skill Type: Recall 3) What is the most significant cause for concern in selecting a variable-rate mortgage? A) Interest rate increases B) Lack of convertibility C) The locked in term D) Lack of security Answer: A Diff: 1 Type: MC Categories: Variable Rate Mortgages Financial Type: Qualitative Skill Type: Recall

4) Which of the following is accurate regarding types of mortgages? A) A convertible VRM gives you protection in case interest rates go up. B) Open mortgages offer slightly better rates than closed mortgages. C) Most fixed-rate mortgages are convertible. D) With a variable-rate mortgage your payments will never go up if prime goes up. Answer: A Diff: 3 Type: MC Categories: Variable Rate Mortgages Financial Type: Qualitative Skill Type: Applied 5) The interest rate on a VRM may be adjusted A) only when prime rate moves higher. B) only on the expiry of the term. C) only when prime rate moves lower. D) any time the prime rate changes. Answer: D Diff: 2 Type: MC Categories: Variable Rate Mortgages Financial Type: Qualitative Skill Type: Recall 6) The allocation of Lucy's mortgage payment has shifted such that more of the payment is going towards interest and less is going towards principal. What has most likely happened to the mortgage interest rate charged on her variable rate mortgage? A) The mortgage interest rate has not changed. B) The mortgage interest rate has decreased. C) The mortgage interest rate has increased. D) The prime lending rate has decreased. Answer: C Diff: 2 Type: MC Categories: Variable Rate Mortgages Financial Type: Qualitative Skill Type: Applied Decision to Own versus Rent a Home 1) Which of the following would be the best advice in a decision to buy or rent a house? A) You should objectively perform the financial assessment. B) If mortgage payments are more than renting, then you should rent. C) Buying is always better because of the equity you get in the long term. D) If interest costs are less than renting, then you should buy. Answer: A Diff: 3 Type: MC Categories: Own Versus Rent a Home Financial Type: Qualitative Skill Type: Applied 25 Copyright © 2022 Pearson Canada Inc.

2) Indicate your assumptions and calculations and comment on whether buying versus renting would make more sense in the following scenario. The couple each grosses $4000 monthly income. They have $40 000 saved for the house purchase and are currently renting a two bedroom apartment for $1500 a month. They want to purchase a two bedroom condo for $300 000, which has monthly expenses as follows: property tax $220, heat $100, and condo fees $350. Consider closing costs, cash flow and other calculations to justify whether you recommend they buy, or not. Answer: Many assumptions are possible. Look for a logical and accurate assessment of the numbers. Assumptions: The $40 000 savings needs to cover the down payment and closing costs, so they have 10 percent to put down . The remaining $10 000 will be sufficient for closing and moving costs. CMHC insurance will be $5,400 and they will add that to the mortgage amount The mortgage will be $275 400, amortized over 25 years, 4% interest, compounded semi-annually Therefore monthly mortgage payment would be $1449 GDSR: 30% 1449 + 220 + 100 + (350/2)/8000 = 24.3% so they easily qualify TDSR: 40% As long as their consumer debt is less than $1,256 monthly payment, they qualify on this too. Renting is $1500 per month Buying will be $1944 per month (not including repairs and maintenance inside) Estimated value in five years If they rent they will have $40 000 plus 444 extra a month, so if invested at 4% return, they would have approximately $78 000 (PV -40000, PMT-444, I/Y 4, N 60, CPT FV) If they bought and the condo increased two percent per year, they equity they would have in five years is the equity of the condo minus the remaining mortgage (minus selling commission) approx $330,000 condo value, minus $15 000 selling commission, minus approx mortgage. Equity if they sold the condo: $75 000 So, as long as they want to buy, and are prepared to spend more on accommodation than they have been, and they plan to stay for five or more years, they should go ahead and buy. Diff: 3 Type: ES Categories: Own Versus Rent a Home Financial Type: Quantitative Skill Type: Applied

3) Discuss in detail all of the factors that may affect the value of your investment in a home in the future. Answer: Many possibilities. Length of time planning to remain in one area Convenience to transportation, schools, shopping, employment, and industry may be negative or positive factors depending on the student's interpretation. Estimates in future growth in house prices, and expectations regarding interest rates Estimates in growth of alternative investments such as value of retirement investments Contributing factors such as demographics, or the economy The cost of borrowing over the years and the ability to save as well for retirement funding Diff: 3 Type: ES Categories: Own Versus Rent a Home Financial Type: Qualitative Skill Type: Applied

4) Illustrate how GDS and TDS ratios as well as cash flow are important in calculating what size mortgage a person can afford. Use the following example to illustrate your conclusion. Hannah earns an annual salary of $72 000 and has following monthly expenses. Taxes and benefits: Rent Groceries and restaurants: Transportation misc Car loan, 3 more years Hobbies and entertainment Student loan, 5 more years RRSP Savings

$1800 $1300 $700 $300 $300 $550 $350 $700

Hannah has $31 000 saved in her RRSP. There is a new condo development going up in her area and she hopes to be able to purchase her own place. The unit she has her heart set on costs $310 000 and they advertise a mortgage rate of 3.5%, compounded semi-annually, for this development. The property taxes will be $170 per month, heating costs $80, and condo fees $300. Answer: Many options are possible, but look for the following: $25 000 down as that is all she can take from her RRSP High ratio mortgage 285 000/310 000 = 92%, so 4.00 CMHC insurance × 285 000 = 11 400 Mortgage payment: 285 000 + 11 400 = 296 400 PV, I/Y 3.5, N 25 × 12, FV 0, CPT PMT $1480 GDS for Hannah = TDS for Hannah =

= 31.3% so ok = 42% so ok, borderline

So Hannah would qualify for this mortgage; however, for cash flow, Hannah will have to change her habits quite a lot. She currently pays $1300 for rent. If she buys this place, she will need to allocate $2030 to accommodation expenses, which is $730 more than she is used to. She could reduce her entertainment and hobbies, food, and/or RRSP savings, but all these will impact her lifestyle. Diff: 3 Type: ES Categories: Own Versus Rent a Home Financial Type: Quantitative Skill Type: Applied

5) Is purchasing a home an expense, an investment, or both? How important is it to consider how long you plan to remain in one location in order to determine the value in purchasing? Answer: There are a variety of points that may be discussed here: A home builds equity from paying down the principal on the mortgage and it builds equity through appreciation in the value of the property. The interest portion of the mortgage payments are an expense you would not have when renting. Therefore, the purchase of a home is both an expense and an investment. In many situations it is the largest asset a Canadian family may build, which can provide substantial support during retirement years. There are many expenses and responsibilities in owning that do not apply to renting. If you may have to move for work in the short term, then buying can be a very expensive option as the total purchasing and selling costs can add up to more than $30 000 (Land transfer tax, CMHC Insurance, Other closing costs, selling commission, penalty for breaking the mortgage) In addition, although house prices have gained over time, they can turn down sharply and unpredictably as has happened many times in the past. If you needed to sell after prices had dropped 'corrected' you could stand to lose your entire equity. For example, if a home was purchased for $400 000 with $40 000 down, and it dropped by ten percent in value and you had to sell, you would lose your entire down payment and more because of the selling fees and cost to break the mortgage etc. This is the power of leverage. Diff: 2 Type: ES Categories: Own Versus Rent a Home Financial Type: Qualitative Skill Type: Applied Mortgage Refinancing 1) You should thoroughly investigate refinancing your mortgage before you do so because the prepayment penalties and closing costs you incur may outweigh the benefits of acquiring a lower interest rate. Answer: TRUE Diff: 1 Type: TF Categories: Mortgage Refinancing Financial Type: Qualitative Skill Type: Recall 2) Mortgage refinancing tends to be more beneficial when you plan to own the home for a longer period of time. Answer: TRUE Diff: 1 Type: TF Categories: Mortgage Refinancing Financial Type: Qualitative Skill Type: Recall 29 Copyright © 2022 Pearson Canada Inc.

3) When is refinancing a home worthwhile? A) When interest rates have dropped more than two percent B) When you can decrease your monthly payment significantly C) When the prepayment penalties and closing costs are less than the financial benefit D) When interest rates have dropped significantly Answer: C Diff: 3 Type: MC Categories: Mortgage Refinancing Financial Type: Qualitative Skill Type: Applied 4) Mortgage companies usually charge interest semi-annually. What would be the effective rate of interest on a mortgage at 4.25 percent compounded semi-annually? A) 4.56 percent B) 4.30 percent C) 4.46 percent D) 4.38 percent Answer: B Diff: 2 Type: MC Categories: Mortgage Refinancing Financial Type: Quantitative Skill Type: Applied 5) Mortgage refinancing is more likely to be worthwhile when A) the prevailing mortgage interest rate is substantially below the rate on your existing mortgage. B) the prevailing mortgage interest rate is equal to the rate on your existing mortgage. C) the rate on your existing mortgage is substantially below the prevailing mortgage interest rate. D) the rate on your existing mortgage is substantially below the prevailing inflation rate. Answer: A Diff: 2 Type: MC Categories: Mortgage Refinancing Financial Type: Qualitative Skill Type: Recall 6) Which of the following is an advantage of a rate modification? A) Your new mortgage rate will be modified to the prevailing mortgage rate. B) Mortgage refinancing and closing costs will be shared equally between you and the bank. C) Your current mortgage rate is blended with the prevailing mortgage rate and the term of the mortgage is extended. D) The mortgage lender will charge a one-time fee of $2000. Answer: C Diff: 3 Type: MC Categories: Mortgage Refinancing Financial Type: Qualitative Skill Type: Recall 30 Copyright © 2022 Pearson Canada Inc.

7) Michael and Rachelle have 18 months remaining on their five-year mortgage term at an annual interest rate of 4 percent compounded semi-annually. The current five-year fixed rate of interest for a mortgage is 2 percent compounded semi-annually. What will be their new mortgage interest rate if they "blend-and-extend" their mortgage for another five-year,, or 60-month, term? A) 2.6 percent B) 4 percent C) 2 percent D) 3.4 percent Answer: A Diff: 3 Type: MC Categories: Mortgage Refinancing Financial Type: Quantitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 8 - Auto and Homeowner's Insurance Background on Insurance 1) Insurance protects you against potential financial losses or liability that results from unexpected events. Answer: TRUE Diff: 1 Type: TF Categories: Background on Insurance Financial Type: Qualitative Skill Type: Recall 2) In the context of insurance, the term liability is used to mean that you may be required to pay someone for damages that you caused. Answer: TRUE Diff: 2 Type: TF Categories: Background on Insurance Financial Type: Qualitative Skill Type: Recall 3) This type of insurance provides financial support to your dependants. or other individuals. A) Health insurance B) Disability insurance C) Life insurance D) Critical illness insurance Answer: C Diff: 1 Type: MC Categories: Background on Insurance Financial Type: Qualitative Skill Type: Recall 4) This type of insurance provides coverage that will cover added living costs, such as in-home nursing care. A) Long-term care insurance B) Disability insurance C) Life insurance D) Critical illness insurance Answer: A Diff: 1 Type: MC Categories: Background on Insurance Financial Type: Qualitative Skill Type: Recall

5) This type of insurance provides coverage that pays you a lump sum benefit in the event that you suffer an event, such as a stroke, heart attack or life-threatening cancer. A) Health insurance B) Long-term care insurance C) Life insurance D) Critical illness insurance Answer: D Diff: 1 Type: MC Categories: Background on Insurance Financial Type: Qualitative Skill Type: Recall 6) This type of insurance provides coverage that pays you with a monthly income if you are unable to work due to injury or illness. A) Health insurance B) Disability insurance C) Long-term care insurance D) Critical illness insurance Answer: B Diff: 1 Type: MC Categories: Background on Insurance Financial Type: Qualitative Skill Type: Recall 7) This type of insurance provides coverage for needs such as dental care and vision care. A) Health insurance B) Disability insurance C) Life insurance D) Long-term care insurance Answer: A Diff: 1 Type: MC Categories: Background on Insurance Financial Type: Qualitative Skill Type: Recall Managing Risk 1) The first step in the risk management process is to define and recognize your exposure to risk. Answer: TRUE Diff: 1 Type: TF Categories: Managing Risk Financial Type: Qualitative Skill Type: Recall

2) When Jane decided not to select collision and comprehensive insurance coverage on her old car, she was accepting her exposure to financial loss from damage to her car. Answer: TRUE Diff: 2 Type: TF Categories: Managing Risk Financial Type: Qualitative Skill Type: Applied 3) A hazard may be defined as a peril or risk that you face. Answer: FALSE Diff: 1 Type: TF Categories: Managing Risk Financial Type: Qualitative Skill Type: Recall 4) Insurance should be considered when the potential financial loss from an event is large. Answer: TRUE Diff: 1 Type: TF Categories: Managing Risk Financial Type: Qualitative Skill Type: Recall 5) Refusing to go bungee jumping is A) avoiding risk. B) accepting risk. C) transferring risk. D) sharing risk. Answer: A Diff: 1 Type: MC Categories: Managing Risk Financial Type: Qualitative Skill Type: Applied 6) Driving carefully and obeying traffic laws is A) avoiding risk. B) reducing risk. C) accepting risk. D) managing risk. Answer: B Diff: 2 Type: MC Categories: Managing Risk Financial Type: Qualitative Skill Type: Applied

7) Getting the flu vaccine is an example of A) avoiding risk. B) reducing risk. C) accepting risk. D) transferring risk. Answer: B Diff: 1 Type: MC Categories: Managing Risk Financial Type: Qualitative Skill Type: Applied 8) Ownership of assets such as cars, homes, and boats results in higher A) liability risk. B) physical risk. C) real risk. D) comprehensive risk. Answer: A Diff: 2 Type: MC Categories: Managing Risk Financial Type: Qualitative Skill Type: Applied 9) When the likelihood of a negative event is very low and the potential financial loss due to the event is small, it would be reasonable to A) avoid risk. B) share risk. C) reduce risk. D) accept risk. Answer: D Diff: 2 Type: MC Categories: Managing Risk Financial Type: Qualitative Skill Type: Recall 10) When the likelihood of a negative event is very high and the potential financial loss due to the event is high, it would be reasonable to A) avoid risk. B) share risk. C) reduce risk. D) accept risk. Answer: A Diff: 2 Type: MC Categories: Managing Risk Financial Type: Qualitative Skill Type: Recall

Role of Insurance Companies 1) Insurance should be considered in some circumstances even when there is only a small likelihood than an event that could cause a financial loss would occur. Answer: TRUE Diff: 2 Type: TF Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 2) Insurance companies generate their revenue from charging premiums well above what they anticipate paying out in claims. Answer: FALSE Diff: 2 Type: TF Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 3) Since insurance companies rely mostly on their premiums to cover claims, they price their insurance policies to reflect the probability of a claim and the size of the claim. Answer: TRUE Diff: 2 Type: TF Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 4) Independent insurance agents are those that work for one particular company. Answer: FALSE Diff: 2 Type: TF Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 5) Legal expenses incurred by an insurance company when defending you against a lawsuit are deducted from your limits of liability coverage. Answer: FALSE Diff: 3 Type: TF Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall

6) Everything else being equal, an insurance company that experiences higher investment earnings can charge a lower premium than an insurance company that experiences lower investment earnings. Answer: TRUE Diff: 1 Type: TF Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 7) In general, insurance companies generate their profit from A) overestimating the value of client claims and keeping the difference as profit. B) investing the proceeds of premiums until the funds are needed to cover claims. C) selling a lot of certain kinds of highly profitable insurance products. D) only insuring people who are low risk to claim. Answer: B Diff: 2 Type: MC Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 8) Insurance agents for an insurance company A) market insurance policies. B) calculate the risks of specific policies. C) decide what insurance policies to offer. D) decide what premiums to charge. Answer: A Diff: 2 Type: MC Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 9) Underwriters for an insurance company A) calculate the risks of specific insurance requests from the public. B) market insurance policies. C) recommend insurance policies that fit customers' needs. D) invest the premiums of policies to make their company a profit. Answer: A Diff: 2 Type: MC Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall

10) Insurance agents who work for one particular company are called A) company agents. B) captive agents. C) independent agents. D) insurance brokers. Answer: B Diff: 1 Type: MC Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall 11) Independent insurance agents, sometimes called brokers, A) work for just one insurance company. B) represent many different insurance companies. C) work for only two or three companies. D) are self-employed and represent their own companies. Answer: B Diff: 1 Type: MC Categories: Role of Insurance Companies Financial Type: Qualitative Skill Type: Recall Auto Insurance 1) If Jack damages his car by skidding on ice and colliding with a fence, his property damage liability would cover the damage to his car. Answer: FALSE Diff: 2 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 2) A part of accident benefits coverage includes coverage for drivers and their passengers in the event of an accident caused by an uninsured driver. Answer: TRUE Diff: 2 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 3) If Fred caused a car accident and his passenger required expensive medical care as a result, his third party liability coverage would first be used to cover those expenses. Answer: FALSE Diff: 3 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 7 Copyright © 2022 Pearson Canada Inc.

4) If you have good health insurance, you don't require accidents benefits coverage in your automobile policy. Answer: FALSE Diff: 3 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 5) Collision and comprehensive coverage is optional in most provinces with the possible exception that you are financing your car and it is required by the lender. Answer: TRUE Diff: 2 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 6) Collision coverage is normally limited to the car itself and not to items that were damaged while in the car. Answer: TRUE Diff: 2 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 7) Some credit cards provide you with collision and comprehensive insurance benefits if you use that card to pay for car rentals. Answer: TRUE Diff: 1 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 8) If Peter caused an accident, and his passenger, John, had to miss work for a month while he recovered, Peter's bodily injury liability coverage could cover medical expenses and loss of income for John. Answer: TRUE Diff: 3 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied

9) Comprehensive coverage insures Peter against damage to his car that results from something such as hail or vandalism. Answer: TRUE Diff: 2 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 10) Third party liability coverage consists of three key components. Answer: FALSE Diff: 1 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 11) The acronym S.E.F. stands for Standard Endorsement Form. Answer: TRUE Diff: 1 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 12) S.E.F. 20, known as Loss of Use, covers the cost of a rental car. Answer: TRUE Diff: 1 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 13) Facility Association ensures that drivers unable to obtain insurance with an individual company are able to obtain the coverage that they need through their provincial government. Answer: FALSE Diff: 2 Type: TF Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall

14) Which of the following is the best case for the need for third party liability insurance coverage? A) You cause a car accident and damage your Honda Civic. B) You cause a car accident and destroy the other driver's Maserati. C) You cause a car accident which disables a pedestrian. D) You cause a car accident and the injuries cause you to miss six months of work. Answer: C Diff: 3 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 15) Which section of auto insurance would pay for medical care for people who were injured in your automobile as a result of an accident that was your fault? A) Accident benefits B) Bodily injury liability coverage C) Insured automobile coverage D) Third party liability coverage Answer: A Diff: 2 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 16) For auto insurance, which area has the highest level of insurance coverage required by law? A) Comprehensive coverage B) Accident benefits coverage C) Uninsured motorist coverage D) Third party liability coverage Answer: D Diff: 2 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 17) Which of the following statements about uninsured motorist coverage is true? A) This coverage applies to bodily injury when you are in an accident with an uninsured driver, regardless of who was at fault. B) It does not apply to accidents caused by a hit-and-run driver. C) It covers bodily injury when an accident is caused by another driver who is not insured. D) It does not pay out when a driver who is at fault has an insurance company that goes bankrupt. Answer: C Diff: 3 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 10 Copyright © 2022 Pearson Canada Inc.

18) Which of the following statements is true concerning comprehensive and collision insurance? A) If you are financing a car, this insurance may be required by the lender. B) Financially, it is advisable to take out the lowest deductible possible. C) If you were in an accident, this coverage could enable you to replace your older car with a new one. D) The deductible is really a form of transferring insurance. Answer: A Diff: 2 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 19) Comprehensive coverage would cover financial losses due to A) damage to your car caused by a hit and run collision. B) damage to your car in an accident for which you were at fault. C) damage to your car caused by wind or hail. D) damage to a neighbour's fence caused by your car. Answer: C Diff: 2 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 20) If you cause an accident resulting in $2000 damage to your car and have collision coverage with $500 deductible, which of the following statements is true? A) Your insurance company will pay $2000 and your insurance premiums will go up $500. B) You will pay $1500. C) Your insurance company will pay $1500. D) The other insurance company will pay $500 and your company will pay $1500. Answer: C Diff: 2 Type: MC Categories: Auto Insurance Financial Type: Quantitative Skill Type: Applied 21) Which of the following is true about pure no-fault insurance? A) No one is deemed to be at fault when an accident occurs. B) You cannot sue the at-fault driver for pain and suffering and economic loss. C) It is the most cost effective insurance because there are no legal expenses. D) The dollar value of accident benefits is much lower. Answer: B Diff: 3 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 11 Copyright © 2022 Pearson Canada Inc.

22) Additional coverage on your automobile insurance policy can be purchased for A) the cost of a rental car while you are having the oil changed. B) the protection of valuables you are carrying in your car. C) reupholstering a worn driver's seat. D) repainting the vehicle before preparing to trade it in. Answer: B Diff: 1 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 23) In which of the following scenarios would your auto insurance coverage be in effect? A) You have family protection coverage and are hit by an uninsured motorist. B) You take your damaged car straight to your friend's autobody repair shop for repair. C) You drive your parents' car without permission and get in an accident. D) Insurance claims would be covered in all these scenarios. Answer: A Diff: 3 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Applied 24) You are not at fault in a car accident that causes you total damages for injuries and lost employment in the amount of $550 000. If you have under insured motorist coverage and the other driver who is at fault has coverage for $500 000, what will you be able to claim? A) The other driver's insurance company will pay $550 000. B) Your auto insurance company will cover $550 000. C) The other driver's insurance company will pay $500 000 and your health coverage will pay $50 000. D) The other driver's insurance company will pay $500 000 and your auto insurance will pay $50 000. Answer: D Diff: 3 Type: MC Categories: Auto Insurance Financial Type: Quantitative Skill Type: Applied

25) The standard endorsement form (S.E.F.) number for Limited Waiver of Depreciation is A) 43 B) 35 C) 27 D) 20 Answer: A Diff: 1 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 26) The standard endorsement form (S.E.F.) number for Legal Liability for Damage to Non-owned Automobiles is A) 43. B) 44. C) 27. D) 20. Answer: C Diff: 1 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 27) The standard endorsement form (S.E.F.) number for Emergency Services Expenses is A) 44. B) 35. C) 27. D) 20. Answer: B Diff: 1 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 28) The standard endorsement form (S.E.F.) number for Loss of Use is A) 43. B) 35. C) 44. D) 20. Answer: D Diff: 1 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall

29) The standard endorsement form (S.E.F.) number for Family Protection Coverage is A) 43. B) 35. C) 27. D) 44. Answer: D Diff: 1 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 30) Facility Association is a not-for-profit organization made up of all auto insurance providers operating in every province and territory including A) Alberta. B) Manitoba. C) Quebec. D) British Columbia. Answer: A Diff: 1 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 31) Which of the following statements best describes the rationale behind a "no-fault" auto insurance system? A) Nobody is truly "at-fault" when an accident occurs. B) The at-fault driver should begin paying for medical expenses as soon as possible. C) The "no-fault" driver should be able to sue for pain and suffering and economic loss. D) The sooner you receive treatment, the sooner you will get better. Answer: D Diff: 2 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall 32) In a pure "no-fault" insurance system A) you are able to sue the at-fault driver for pain and suffering and economic loss. B) you are unable to sue the at-fault driver for pain and suffering and economic loss. C) you are able to sue the at-fault driver for pain and suffering, but not for economic loss. D) you are able to sue the at-fault driver for economic loss, but not for pain and suffering. Answer: B Diff: 2 Type: MC Categories: Auto Insurance Financial Type: Qualitative Skill Type: Recall

33) Your insurance policy carries a $200 deductible for collision and $500 deductible for comprehensive. If you cause an accident which results in the following repairs and losses to your car and possessions, what will be the reimbursement from the insurance company under your collision and comprehensive coverage? • Replacement of trailer hitch • Replacement of rear bumper • Replacement of computer (in trunk) • Replacement of rear windshield A) $1400 B) $1800 C) $1500 D) nothing Answer: A Diff: 3 Type: MC Categories: Auto Insurance Financial Type: Quantitative Skill Type: Applied

$500 $700 $400 $400

Factors That Affect Your Auto Insurance Premiums 1) Third party liability insurance coverage would cost more for an expensive car than for an inexpensive car of the same age. Answer: FALSE Diff: 2 Type: TF Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Applied 2) Jasmeen was involved in a car accident which caused extensive medical expenses for herself and her son totalling $700 000. If the driver who caused the accident had third party liability coverage, then Jasmeen's family protection coverage could cover . Answer: TRUE Diff: 3 Type: TF Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Quantitative Skill Type: Applied 3) Drivers considered "high risk" cannot get automobile insurance at any price. Answer: FALSE Diff: 3 Type: TF Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall

4) To significantly reduce your automobile insurance premiums and still have adequate coverage, you should A) take the minimum levels of liability coverage. B) raise the deductibles on comprehensive and collision. C) waive medical payments coverage. D) waive uninsured motorist coverage. Answer: B Diff: 2 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall 5) Auto insurance rates are based on all of the following items except A) vehicle use. B) height and weight. C) driving record. D) sex. Answer: B Diff: 1 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall 6) Auto insurance rates are based on A) whether or not you keep your car in the garage. B) your marital status. C) the number of kilometres and the type of driving you do each year. D) the condition of your vehicle. Answer: C Diff: 1 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall 7) If you live in a province with private auto insurance, it can be very expensive if you A) have a new car. B) are a male under age 25. C) have not taken a driver training course. D) have an older car without air bags. Answer: B Diff: 1 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall

8) One of the advantages of no-fault automobile insurance is that A) it does not use the legal system so the overall costs are much lower. B) it results in higher jury awards to victims. C) the injured receives immediate medical treatment through their own insurance. D) the drivers who are at fault face no penalties for their risky behaviours. Answer: C Diff: 3 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall 9) Which of the following will reduce your insurance rate? A) Decreasing your deductible B) Paying all speeding tickets promptly C) Driving antique classic cars D) Increasing your deductible Answer: D Diff: 2 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Applied 10) Which is the best advice about shopping for car insurance in provinces where there are private insurers? A) Shop online for insurance before you start to shop for a car. B) Ask friends and family where to get the best rates. C) Ask at the car dealership while waiting for the delivery of your car. D) Use the agent recommended by the car dealer as prices rarely vary. Answer: A Diff: 1 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall 11) You are in an accident which causes $3000 in damages to your car, and your policy has a $500 deductible for collision and $300 for comprehensive. If the other driver is at fault, which is correct? A) You pay $500 deductible and claim it from the other driver's insurance company. B) You pay $300 deductible and claim it from the other driver's insurance company. C) Your insurance company covers the deductible. D) You have to pay the deductible and can claim it back if you have an umbrella policy. Answer: A Diff: 2 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Applied 17 Copyright © 2022 Pearson Canada Inc.

12) What is the best advice when considering how much third party liability insurance coverage to purchase? A) At least $1 million coverage B) The provincially required amount C) $500 000 coverage D) As much as you can afford Answer: A Diff: 2 Type: MC Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Recall 13) Discuss six ways to reduce your automobile insurance premiums and indicate whether it is via sharing, reducing, avoiding, or accepting. Answer: Any six of the following, categorization could vary: • Buy a less expensive car - reducing • Reduce the mileage you drive each year - reducing • Maintain a safe driving record - reducing • Take driver's training - reducing • Take advantage of discounts for air bags, anti-lock brakes, alarms, or other safety features - reducing • Shop around for good rates with different companies - sharing • Raise your deductible amount on comprehensive and collision - sharing • Don't make small claims - accepting • Not own a car and use alternate forms of transportation - avoiding Diff: 3 Type: ES Categories: Factors That Affect Your Auto Insurance Premiums Financial Type: Qualitative Skill Type: Applied If You Are in an Auto Accident 1) Which of the following is the appropriate action to take in the event of an accident? A) If possible, move your car out of traffic and collect information using an accident checklist. B) As long as no one is injured, remain in place and contact your insurance company to come and document the specifics so they can determine fault. C) Contact the police immediately and stay where you are regardless of how minor the accident was. D) If you feel the other driver might be guilty of a Criminal Code offence such as drunk driving, conduct a Citizen's arrest. Answer: A Diff: 2 Type: MC Categories: If You Are In an Auto Accident Financial Type: Qualitative Skill Type: Applied

2) If you are in an accident, what information should you gather before you leave the scene? Answer: Answers will vary, but here is a selection of possibilities. The date, time and location of the accident. The road conditions and the time of day. The other driver's name, licence number, home address, phone number, and insurance information. Were there any passengers in the vehicles involved? Were there any witnesses? The make, model, plate number, and damage of the other vehicles involved in the accident. A sketch of the accident scene (note the position and direction of the vehicles). Take pictures. Write down the details of how the accident happened as soon as possible. Diff: 2 Type: ES Categories: If You Are In an Auto Accident Financial Type: Qualitative Skill Type: Recall Homeowner's Insurance 1) If Zack had a replacement value home insurance policy and had a custom made table that he paid $16 000 for a number of years ago and which was recently appraised for $22 000, the insurance company would pay him $16 000 for it, if it were destroyed in a fire. Answer: FALSE Diff: 3 Type: TF Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied 2) It is a good idea to list all of your personal assets, estimate the market value of each item, and then film the contents of your house with a video camera to be able to show proof of their existence. Answer: TRUE Diff: 1 Type: TF Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Recall 3) If your neighbour falls down the steps in your home and sues you for damages, you could be held responsible to pay compensation for his or her injuries and rehabilitation. Answer: TRUE Diff: 1 Type: TF Categories: Homeowner's Insurance Financial Type: Qualitative Skill Type: Applied

4) Named perils coverage protects the automobile owner against theft of specific items named in the auto insurance policy. Answer: FALSE Diff: 2 Type: TF Categories: Homeowner's Insurance Financial Type: Qualitative Skill Type: Applied 5) All perils coverage protects the home and any other structures on the property against all events except those that are specifically excluded. Answer: TRUE Diff: 2 Type: TF Categories: Homeowner's Insurance Financial Type: Qualitative Skill Type: Recall 6) Most standard home insurance policies provide coverage for A) earthquake damage. B) liability. C) flood damage. D) computers. Answer: B Diff: 2 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Recall 7) How much coverage would be provided under a standard homeowner's cash value policy which deems furniture to be fully depreciated in ten years, if your antique dresser from the 1860s is destroyed by fire? You purchased the dresser eleven years ago for $1300 and it was recently appraised at $2600, and you have an offer from an antique collector to purchase it for $3100. A) $0 B) $1300 C) $2600 D) $3100 Answer: A Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied

8) On average, which is the largest category for claims to homeowner's insurance? A) Fire and lightning B) Wind and hail C) Water damage and freezing D) Other claims not specified above Answer: A Diff: 1 Type: MC Categories: Homeowner's Insurance Financial Type: Qualitative Skill Type: Recall Homeowner's Insurance Policy Provisions 1) An HDTV was purchased for $6500 and is now three years old. If it is stolen and it is deemed to have a life of five years, the insurance company will settle for $3000 under a cash value policy. Answer: FALSE Diff: 2 Type: TF Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied 2) If Eric's dog ran across a road and caused a driver to swerve and injure a passerby, Eric's umbrella personal liability coverage could cover the expenses of both the driver and the injured pedestrian. Answer: TRUE Diff: 3 Type: TF Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied 3) If you have automobile and homeowner's insurance, there is no reason to purchase an umbrella personal liability policy for additional coverage of $1 million. Answer: FALSE Diff: 2 Type: TF Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied 4) Homeowner's insurance also covers medical payments and loss of income to the policyholder. Answer: FALSE Diff: 2 Type: TF Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied

5) Brenda inherited some pieces of valuable art which she keeps in her home. She needs full comprehensive coverage to make sure her art is covered for replacement value. Answer: FALSE Diff: 3 Type: TF Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied 6) Your home insurance provides for replacement value for personal property losses. If your china hutch (ten year depreciation) was vandalized and completely destroyed and cost $400 four years ago, but a new one will cost $600, how much will the insurance company pay? A) $400 B) $240 C) $600 D) Nothing, vandalism is not covered. Answer: C Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied 7) You have cash value coverage for your personal property on your homeowner's policy. Your camera cost $300 eight years ago had a life expectancy of 10 years. The camera was stolen, and a new one will cost $100. How much will the insurance company pay? A) $60 B) $100 C) $200 D) $300 Answer: A Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied 8) Which of the following would not be covered by liability portion of your homeowner's insurance? A) Your dog bites a guest and the guest sues you. B) While your accountant is visiting you, she trips on your carpet, breaks her leg and sues you. C) Your neighbour sues you because you have a tree he feels will fall on his home and damage it. D) An uninvited salesman walking up your sidewalk trips and falls and sues you. Answer: C Diff: 2 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied 22 Copyright © 2022 Pearson Canada Inc.

9) Which of the following is true about liability insurance in a homeowner's policy? A) The amount of coverage you select should not be tied to the value of your home. B) It would pay for temporary housing while your home is repaired due to covered damage. C) It would reimburse a homeowner for damage done by a visitor. D) It would not cover you for a skiing accident where you cause injury to someone else. Answer: A Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied 10) Your home insurance policy has a $500 deductible and provides cash value coverage on contents. If your home is over 25 years old and a small fire causes $6000 damage to it, what amount of the claim would the insurance company pay? A) $500 B) $5500 C) $6000 D) None because the home is over 25 years old Answer: B Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied 11) What is the name of the document which needs to be completed for additional personal property insurance not adequately covered by your homeowner's policy? A) A general liability agreement B) A personal property floater C) Extra value full replacement rider D) An endorsement Answer: B Diff: 2 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Recall

12) A 60-inch Smart TV originally purchased for $5000 has a life expectancy of seven years. It is five years old and has been destroyed in a fire. Today a similar TV would cost $2100. Your cash value policy will A) pay you $2100 to replace it with a similar model available now. B) pay you the $5000 original purchase price. C) pay you $1429 as settlement in full. D) pay you the accumulated depreciation value of $3571. Answer: C Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied 13) Consider the loss from fire damage of furniture which cost $6000 thee years ago and has an expected life of ten years. This furniture would cost $9000 to purchase today. Under a replacement cost policy, how much would the insurance company pay you for this loss? A) $6000 B) $9000 C) $4200 D) $6300 Answer: B Diff: 2 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied 14) In order to have an umbrella personal liability policy A) you must have existing auto insurance. B) you must have existing homeowner's insurance. C) you must have both existing auto and homeowner's insurance. D) you must prove your insurability. Answer: C Diff: 2 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Recall

15) What would be the main benefit to Peter on the option of including a personal property floater in his insurance policy? A) Reduce the amount of deductible in his insurance claims. B) Extend liability insurance protection to his boat and secondary properties. C) Receive replacement cost coverage in the event of insurance claims. D) Extend his homeowner's insurance policy to cover certain expensive assets. Answer: D Diff: 2 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied 16) Which of the following is the most important reason to carry significant third party liability coverage? A) It would provide medical and rehabilitation coverage for you and the passengers in your car, to the limit you select, and if insufficient, you would be required to pay the difference. B) It provides excess medical and rehabilitation coverage if you are not at fault. C) It provides excess coverage for accidents caused by uninsured and under insured motorists, when you are not at fault and if insufficient, you would be required to pay the difference. D) It provides coverage for any court ordered awards to injured parties if you are at fault and if your coverage is insufficient, you would be required to pay the difference. Answer: D Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied 17) Which one of the following is not a type of homeowner's insurance policy? A) comprehensive coverage B) broad coverage C) all perils coverage D) basic coverage Answer: C Diff: 1 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Recall

18) Jeff and Sarah own a home that is currently value at $450 000. When they bought the home six years ago, it was only valued at $288 000 and they purchased a homeowner's insurance policy at that time that provided full coverage based on the purchase value. Unfortunately, their homeowner's insurance policy has not been updated in the past six years and they just had a kitchen fire that caused $150 000 of fire, water, and smoke damage. How much of the damage will the insurance company pay for? A) $150 000 B) $120 000 C) $96 000 D) $135 000 Answer: B Diff: 3 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Quantitative Skill Type: Applied

19) Various home homeowners' insurance policy features can play a significant role in the protection of one's net worth. Give your own specific examples of what the following elements of property insurance could protect you from, compared with someone who had weaker coverage, or no coverage. Comprehensive coverage versus named perils Personal property floater Umbrella personal liability coverage Tenant's insurance Personal property replacement cost Answer: Answers will vary a lot. Comprehensive coverage would cover other structures like a shed, garage, and recreational items not explicitly covered in a named perils type basic insurance contract. Personal property floater would cover very expensive valuables such as jewellery, and art that might not be covered if the values are above standard limits in the general contract. Umbrella personal liability coverage could cover in the event that you or a pet of yours inadvertently cause major injuries that could limit or terminate someone's earning potential, or require a lifetime of special medical care, through an event such as a pet getting loose which causes a traffic accident, a pet attacking someone, or losing control of a boat or recreational vehicle and causing damages and injuries to a bystander. Tenant's insurance could cover all your belongings if they were damaged by fire or smoke or water in a home you rent. Personal property replacement cost (versus cash value) can be important because even though your belongings may decrease in value over time, they are still required by you and would need to be replaced if damaged or lost. In addition, inflationary pressures over time can mean that replacing an item would actually cost more than when it was first purchased. Examples for replacement value insurance would be for loss or theft of jewellery, antiques, paintings and other artworks, collections of stamps, coins, and other collectibles that can increase in value over time. Diff: 3 Type: ES Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied

20) Use specific examples to discuss whether it is justifiable that government sets rules for requiring people to have liability insurance coverage. Should individuals be allowed to choose whether or not they are prepared to accept risk? When, if ever, is it justifiable for government to impose regulations on this? Answer: Many possibilities, however, the most obvious example is that all provinces have a minimum compulsory third party liability insurance coverage for auto insurance. Why is this justifiable? One could argue that people have the right to cause their own financial losses, but not to cause losses to others, and therefore third party liability should be required for more than car ownership, and that the minimum coverage should be a lot higher than $200 000. Driving is not a right. Lack of third party liability coverage could leave others in worse financial circumstances than the person at fault. Perhaps there should be required coverage for other privileges, such as ownership of other kinds of vehicles and pets which could cause harm to third parties. One could argue that liability insurance coverage be required for home ownership, for gun ownership, boat, ATV, etc. One could also argue that $200 000 third party liability is not nearly enough and regulation should require more. People could also argue, that if they can prove sufficient means to 'self-insure' that one would not be required to purchase coverage. Diff: 3 Type: ES Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied Homeowner's Insurance Premiums 1) More than sixty percent of homeowner's insurance premiums go towards settling claims. Answer: TRUE Diff: 3 Type: TF Categories: Homeowner's Insurance Premiums Financial Type: Qualitative Skill Type: Applied 2) A higher insurance deductible reduces the amount of coverage provided by homeowner's insurance, and therefore results in a lower insurance premium. Answer: TRUE Diff: 1 Type: TF Categories: Homeowner's Insurance Premiums Financial Type: Qualitative Skill Type: Recall 28 Copyright © 2022 Pearson Canada Inc.

3) Using one insurer for all types of insurance will not reduce your homeowner's insurance premium. Answer: FALSE Diff: 2 Type: TF Categories: Homeowner's Insurance Premiums Financial Type: Qualitative Skill Type: Applied 4) The best way to reduce your homeowner's insurance premiums is to A) insure your home for 60 percent of its value. B) drop coverage for medical payments. C) increase deductibles. D) eliminate liability coverage. Answer: C Diff: 2 Type: MC Categories: Homeowner's Insurance Premiums Financial Type: Qualitative Skill Type: Recall 5) Which of the following actions is a suggestion to reduce your homeowner's insurance premium? A) Install better locks or a security system. B) Make prompt small claims against your policy. C) Eliminate your deductible all together. D) Decrease your liability coverage. Answer: A Diff: 3 Type: MC Categories: Homeowner's Insurance Premiums Financial Type: Qualitative Skill Type: Recall 6) John just purchased a new home and he wants to feel sure that his home and possessions are covered as fully as possible. Which coverage should John select? A) Comprehensive coverage B) Broad coverage C) Full perils coverage D) Custom coverage Answer: A Diff: 2 Type: MC Categories: Homeowner's Insurance Policy Provisions Financial Type: Qualitative Skill Type: Applied

7) List four ways to reduce your homeowner's insurance premiums and categorize whether it is via sharing, reducing, avoiding or accepting. Answer: Any four of the following: • Increase your deductible - sharing (increasing risk to you, less to the insurance company) • Improve protection for your home with better locks, alarms, shutters, etc. - reducing • Use one insurer for all types of insurance to get a discount - sharing • Stay with the same company at renewal time if the rate is good - sharing • Shop around for good rates - sharing • Don't make small claims - accepting more risks • Choose basic coverage - accepting more risk yourself, or sharing less • Do not get extra liability coverage - accepting Diff: 3 Type: ES Categories: Homeowner's Insurance Premiums Financial Type: Qualitative Skill Type: Applied Filing a Claim 1) After the insurance adjuster completes their estimate of repair costs, you can appeal the decision if an independent estimate suggests the insurance company's estimate is too low. Answer: TRUE Diff: 2 Type: TF Categories: Filing a Claim Financial Type: Qualitative Skill Type: Recall Tenant's Insurance 1) While tenant's insurance would reimburse you if you had to replace furniture damaged in a fire, it would not pay for the medical expenses for a friend who was injured in your home. Answer: FALSE Diff: 2 Type: TF Categories: Tenant's Insurance Financial Type: Qualitative Skill Type: Applied 2) Which of the following is true of tenant's insurance? A) You only need to buy it if you have possessions of considerable value. B) It will not cover you if a visitor sues you for an injury received in your apartment. C) It covers only your own property, not the property of your landlord. D) Because premiums are low, most people who need it have renter's insurance. Answer: C Diff: 2 Type: MC Categories: Tenant's Insurance Financial Type: Qualitative Skill Type: Recall 30 Copyright © 2022 Pearson Canada Inc.

3) Jennifer rents an apartment and is considering tenant's insurance. Which of the following is accurate about what Jennifer can expect to get coverage for in a standard cash value tenant's insurance policy with a $500 deductible? A) Coverage for the diamond ring she inherited from her grandmother and keeps hidden B) Coverage for her brother's antique car, which got damaged by hail in her back yard C) Coverage for her laptop, which she purchased a year ago for $500 and was stolen D) Coverage for smoke damage to her furniture. Answer: D Diff: 3 Type: MC Categories: Tenant's Insurance Financial Type: Qualitative Skill Type: Applied Umbrella Personal Liability Policy 1) An umbrella personal liability policy is useful for assets beyond a car and home that require liability protection, but it can only be held as a supplement to existing home or auto insurance. Answer: TRUE Diff: 2 Type: TF Categories: Umbrella Personal Liability Policy Financial Type: Qualitative Skill Type: Recall

Personal Finance, Canadian Ed., 5e (Madura) Chapter 9 - Health and Life Insurance Background on Health and Life Insurance 1) Your most important asset is your ability to earn income. Answer: TRUE Diff: 3 Type: TF Categories: Disability Insurance Financial Type: Quantitative Skill Type: Applied 2) As of 2019, there were more than 160 life and health insurance companies operating in Canada. Answer: TRUE Diff: 1 Type: TF Categories: Background on Health and Life Insurance Financial Type: Qualitative Skill Type: Recall 3) More people have disability insurance coverage than extended health care coverage. Answer: FALSE Diff: 1 Type: TF Categories: Background on Health and Life Insurance Financial Type: Qualitative Skill Type: Recall 4) Which of the following is true about the cost of health care in Canada? A) The supplementary health care benefits funded by the provinces vary across the country. B) The federal government administers all Canadian health care through the Canada Health Act. C) Health care costs as a portion of revenue are growing minimally over time. D) Approximately half the funding for health care comes from private health care plans. Answer: A Diff: 3 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall

5) Which of the following is not an important consideration from the employer's perspective in sponsoring a group benefits plan? A) The ability to write off premiums as business expenses B) Providing coverage for employees who are uninsurable C) Encouraging loyalty and trust from employees D) Improving staff retention Answer: B Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Applied 6) Which of the following is not an important consideration from the employee's perspective regarding group benefits plans? A) Saving money on premiums for insurance B) Coverage for employees who are uninsurable C) Protection on top of government plans D) Improving staff retention Answer: D Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Applied 7) The beneficiary of a life insurance policy is A) the owner of the policy. B) the one who pays the premiums. C) the life insured. D) the one who receives the settlement option. Answer: D Diff: 1 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 8) Health insurance included all of the following benefits except A) disability insurance. B) critical illness insurance. C) medicare. D) life insurance. Answer: D Diff: 1 Type: MC Categories: Background on Health and Life Insurance Financial Type: Qualitative Skill Type: Recall

9) Family A consists of two spouses in their early thirties who have two children. They have just purchased a house with a low down payment, so they have a fairly high mortgage. They own two older cars. He works as an engineer with growing earnings potential and he has very basic medical coverage and a small insurance policy at work. She is studying accounting part-time while she stays home to look after the children. Family B consists of a single woman in her late twenties who has been granted tenure as a professor at York University. Student loans are at a minimum, as they have been paid regularly since graduating with her PhD. Because of her dedication to academics, there is no plan for marriage in the long-term future. She owns a recent model compact car and occupies a one-bedroom apartment close to the school. She has a valuable art collection, most of which was left to her by her parents, and she intends to add to it as her growing income permits. Annual long-term vacations are her second passion. She will not qualify for York University's benefit plan until she completes two years of probationary service. Compare and contrast the insurance needs of these two cases. Please be as comprehensive as possible and provide the reasons for each decision. Answer: The answers to this question will vary. Family A needs life insurance coverage for debt repayment and income loss on both lives as well as disability income for loss of income and the cost of a family care giver. Since his company offers only basic insurance, the family should seek a broker to advise on supplemental health coverage for the entire family. Long-term care probably isn't required at this time. Family B is a single professional with a good income, no debts, and no dependants. This creates a bit of a dilemma for the student in terms of making insurance decisions. The student might only come up with increased coverage for life and health until the employer's policy starts in two years. It is probably wise to explore cheap (due to age) long-term care in her present circumstances, as she will likely remain a single earning professional. An "own occupation" disability policy is probably in order along with a supplementary individual health care policy. As well, she needs some out-of-the-country medical coverage for her vacations. Professors may want to turn this into a more comprehensive question by including home, tenants, liability, medical, and fire insurance as well as coverage for other personal assets. Diff: 3 Type: ES Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Applied

10) Now that you have studied home, auto, liability, health, disability, critical illness, and long-term care insurance coverage, you should have a good understanding of how they relate to your financial plan. With respect to each type of insurance, discuss the relative importance that each type has to your current understanding of financial planning. Rank the importance of each type of coverage as it pertains to you personally. What types of insurance could you do without? What coverage can you not do without under your present circumstances? What types of insurance would you consider adding to your plan as your lifestyle changes? Answer: There is no correct answer to this question but the student should be able to apply sufficient knowledge of each type of insurance, including features, and incorporate them to the student's present situation. The ability to apply this knowledge and connect it to the financial planning process is the main point of this question. Diff: 3 Type: ES Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Applied 11) From the employer's perspective, describe four advantages for group health insurance plans. Answer: (1) Provide owners with the opportunity to write off premiums as business expenses; (2) Encourage loyalty and trust among employees; (3) Enable better staff retention because of the security employees feel; (4) Be in a position to help if tragedy befalls an employee and there is great need. Diff: 2 Type: ES Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall Canada's Health Care System 1) The Canada Health Act ensures that all provinces offer the same medical services. Answer: FALSE Diff: 2 Type: TF Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 2) The Canada Health Act dictates that the provinces provide minimum universal standards of health care coverage. Answer: TRUE Diff: 1 Type: TF Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall

3) While the Canada Health Act is federal legislation, it is the responsibility of the provinces and territories to Administer and deliver health care services. Answer: TRUE Diff: 1 Type: TF Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 4) Canada's health care system provides a single national health insurance plan. Answer: FALSE Diff: 1 Type: TF Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 5) The federal government sets and administers national standards for the national health care system through the Canada Health Act. Answer: TRUE Diff: 1 Type: TF Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 6) What principles must the provinces and territories meet to qualify for the full Canada Health Transfer? A) Public administration, accountability, universality, portability and accessibility B) Public administration, comprehensiveness, universality, portability and accessibility C) Public administration, comprehensiveness, universality, accountability and accessibility D) Public administration, fairness, portability, universality and comprehensiveness Answer: B Diff: 3 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 7) While the Canada Health Act ensures that medically necessary services are provided based on individual need rather than the ability to pay, who funds the supplementary benefits available to certain segments of the population such as seniors, children, and social assistance recipients? A) Canada Security Plan B) Private sector insurance C) The provinces and territories D) Federal government assistance plan Answer: C Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 5 Copyright © 2022 Pearson Canada Inc.

8) Additional insurance commonly offered through employers includes A) dental insurance. B) critical illness insurance. C) liability insurance. D) long-term care insurance. Answer: A Diff: 1 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 9) Employee group health insurance policies commonly offer A) employee assistance programs. B) critical illness insurance. C) long term care insurance. D) universal life insurance. Answer: A Diff: 2 Type: MC Categories: Role of Private Health Insurance Financial Type: Qualitative Skill Type: Recall 10) Individual health insurance plans A) duplicate coverage offered by group plans. B) expire when you resign your employment. C) have less expensive premiums. D) are purchased directly through agents. Answer: D Diff: 1 Type: MC Categories: Role of Private Health Insurance Financial Type: Qualitative Skill Type: Recall 11) Which principle of the Canada Health Act states that plans must insure all medically necessary services provided by hospitals, medical practitioners, and dentists working within a hospital setting? A) Accessibility B) Comprehensiveness C) Universality D) Portability Answer: B Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 6 Copyright © 2022 Pearson Canada Inc.

12) Which principle of the Canada Health Act states that plans must entitle all insured persons to health insurance coverage on uniform terms and conditions? A) Accessibility B) Comprehensiveness C) Universality D) Portability Answer: C Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 13) Which principle of the Canada Health Act states that plans must provide all insured persons with reasonable access to medically necessary hospital and physician services without financial or other barriers? A) Accessibility B) Comprehensiveness C) Universality D) Portability Answer: A Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 14) Which principle of the Canada Health Act states that existing plans must cover all insured persons for three months when they move to another province or territory within Canada? A) Accessibility B) Comprehensiveness C) Universality D) Portability Answer: D Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall

15) Which principle of the Canada Health Act states that plans must be administered and operated on a non-profit basis by a public authority accountable to the provincial or territorial government? A) Accessibility B) Public administration C) Universality D) Portability Answer: B Diff: 1 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 16) Insured health care services include A) medically necessary surgical-dental services. B) drugs prescribed outside hospitals. C) hearing aids. D) home care and nursing. Answer: A Diff: 1 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 17) From the employer's perspective, group plans A) provide owners with the opportunity to get a tax credit for insurance premiums. B) enable better staff retention because employees feel like they can't leave the company. C) directly help keep the company profitable. D) help keep the workforce healthy and productive. Answer: D Diff: 2 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 18) From the employee's perspective, group plans A) provide added protection up to government mandated maximums. B) help all Canadian employees save money on provincial premiums. C) let employees know what individual insurance they must buy if its not covered in their group plan. D) help insure employees that may otherwise be uninsurable. Answer: D Diff: 3 Type: MC Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall 8 Copyright © 2022 Pearson Canada Inc.

19) List and describe the five principles of the Canada Health Act. Answer: Public Administration Plans must be administered and operated on a non-profit basis by a public authority accountable to the provincial or territorial government. Comprehensiveness Plans must insure all medically necessary services provided by hospitals, medical practitioners, and dentists working within a hospital setting. Universality Plans must entitle all insured persons to health insurance coverage on uniform terms and conditions. Portability Existing plans must cover all insured persons for three months when they move to another province or territory within Canada. Accessibility Plans must provide all insured persons with reasonable access to medically necessary hospital and physician services without financial or other barriers. Diff: 2 Type: ES Categories: Canada's Health Care System Financial Type: Qualitative Skill Type: Recall Disability Insurance 1) There is very little need for individual disability insurance because most workers have employer-sponsored disability coverage and are also eligible for CPP and worker's compensation. Answer: FALSE Diff: 2 Type: TF Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 2) Disability insurance coverage will replace all your lost income while disabled. Answer: FALSE Diff: 2 Type: TF Categories: Disability Insurance Financial Type: Qualitative Skill Type: Recall 3) "Any occupation" disability insurance is the least expensive disability insurance coverage. Answer: TRUE Diff: 1 Type: TF Categories: Disability Insurance Financial Type: Qualitative Skill Type: Recall 9 Copyright © 2022 Pearson Canada Inc.

4) CPP has a disability insurance option that will cover you if you are partially disabled. Answer: FALSE Diff: 2 Type: TF Categories: Disability Insurance Financial Type: Qualitative Skill Type: Recall 5) You may be able save money on disability insurance premiums if your emergency fund is large enough to cover a few months' expenses, allowing you to select a longer waiting period. Answer: TRUE Diff: 3 Type: TF Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 6) The "any occupation" type of disability insurance is attractive to professionals. Answer: TRUE Diff: 3 Type: TF Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 7) A person age 25 to 35 has a greater than 50 percent chance of becoming disabled for longer than three months. Answer: TRUE Diff: 2 Type: TF Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 8) Which of the following statements is true regarding disability insurance? A) You should have it even if you are retired and living on a pension. B) The principle of indemnification will limit the amount of coverage you can get with an individual policy. C) If you are self-employed, critical illness insurance would be a better option than disability. D) Disability insurance from an employee group plan is the best coverage. Answer: B Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied

9) Regarding the definition of "disability," A) the "any occupation" definition is the best one for the insured. B) it varies from one disability policy to another and is the most important consideration. C) the "regular occupation" definition would pay benefits even if you choose to return to the workforce in another occupation that pays you an income. D) most employee group insurance uses the regular occupation to age 65 definition. Answer: B Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Recall 10) Which of the following would be of little concern when calculating the amount of disability insurance needed? A) The cost of one's monthly mortgage payments B) One's level of CPP disability coverage C) One's employee group disability insurance coverage D) One's financial goals Answer: B Diff: 2 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 11) Which of the following is true regarding employer sponsored long-term disability insurance? A) Most group plans offer full disability benefits payable to age 65. B) Most firms offer employees disability insurance. C) Most plans use the 'any occupation' definition after two years of disability. D) A typical disability policy covers about 90 percent of the employee's gross salary. Answer: C Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 12) If Tom is a technology consultant and wants to purchase reliable long-term disability insurance coverage that is cost effective for him, which would be the best choice? A) Professional occupation B) Any occupation C) Regular occupation D) Business occupation Answer: C Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 11 Copyright © 2022 Pearson Canada Inc.

13) The average duration of a disability lasting more than three months is longest for which age? A) 25 years old B) 35 years old C) 45 years old D) 55 years old Answer: C Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 14) If John's business had purchased disability insurance coverage for its employees which was guaranteed renewable, which of the following is true? A) The insurance company must renew the coverage with same benefits and premiums at the renewal date. B) The employer must renew the same benefits each year, even if the premiums increase. C) The insurance company must renew the coverage with the same benefits but could increase the premiums. D) The insurance company must renew the coverage, but could change the definition of disability used. Answer: C Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 15) Which of the following is true about the chances of becoming disabled? A) The probability of a 35-year-old becoming disabled for three months or longer before they reach age 65 is around 25 percent. B) Since the chance of becoming disabled is small, most people do not need disability insurance coverage. C) Disability insurance is a good thing to have even if you have a low probability of becoming disabled. D) The average length of a disability lasting more than three months is 1.5 years for a 35-year-old. Answer: C Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Recall

16) An individual covered by disability insurance who has recently recovered and is returning to work after receiving benefits would be most concerned with A) the waiting period. B) the benefit period. C) the guaranteed renewable provision. D) the non-cancellable provision. Answer: D Diff: 3 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 17) Employment Insurance (EI) does not provide adequate coverage for a long-term disability because A) it provides benefits for only a 15-week period. B) it provides only 20 percent of regular income for the insured. C) it takes a long time to process the application. D) it is only payable in extreme cases of disability. Answer: A Diff: 2 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Applied 18) Which of the following is true about disability insurance? A) For most people, their emergency fund would look after them if they became disabled. B) Most people have excellent disability insurance coverage from their group insurance at work. C) People under age 35 recover quickly and are less likely to become disabled than older people. D) Becoming disabled could be more financially devastating than losing your home. Answer: D Diff: 2 Type: MC Categories: Disability Insurance Financial Type: Qualitative Skill Type: Recall

19) If you become disabled while employed and have disability insurance coverage, what types of resources might you have to cover you during the waiting period? Answer: A variety of possibilities: Short-term disability or sick leave from employee benefits is used first but often only covers a few days to two weeks. If you are covered by an employer's disability plan, coverage may start fairly soon and cover a portion of your earnings for a few months. You may have to use your assets, such as savings accounts and investments, to live on until the disability insurance starts to pay if you have a 90 or 120 day waiting period. Emergency funds are important for this. RRSP funds are a poor option. CPP would only help in rare and extreme cases EI would cover a small amount and be offset by employee benefits. Diff: 2 Type: ES Categories: Disability Insurance Financial Type: Qualitative Skill Type: Recall Critical Illness Insurance 1) Critical illness insurance benefits are paid out to disabled employees on a monthly basis. Answer: FALSE Diff: 2 Type: TF Categories: Critical Illness Insurance Financial Type: Qualitative Skill Type: Recall 2) To collect the benefits from a critical illness insurance policy, you must survive an insured condition for 30 days. Answer: TRUE Diff: 2 Type: TF Categories: Critical Illness Insurance Financial Type: Qualitative Skill Type: Recall

3) Cancer is one of the three major critical illnesses covered by critical illness insurance. Answer: FALSE Diff: 1 Type: TF Categories: Critical Illness Insurance Financial Type: Qualitative Skill Type: Recall 4) Insurance companies use the same definition for similar life-altering illnesses. Answer: FALSE Diff: 1 Type: TF Categories: Critical Illness Insurance Financial Type: Qualitative Skill Type: Recall 5) Critical illness insurance A) is one of the benefits commonly offered in employee group insurance plans. B) reimburses you for treatment expenses if you survive a life-altering illness at least 30 days. C) pays a lump sum benefit if you survive a life-altering illness listed in the policy and are able to survive that illness for at least 30 days. D) pays a lump sum benefit on a list of life-threatening illnesses, with evidence from a physician. Answer: C Diff: 2 Type: MC Categories: Critical Illness Insurance Financial Type: Qualitative Skill Type: Recall 6) The three major critical illnesses include all of the following, except A) diabetes. B) life-threatening cancer. C) stroke. D) heart disease. Answer: A Diff: 1 Type: MC Categories: Critical Illness Insurance Financial Type: Qualitative Skill Type: Recall Long-Term Care Insurance 1) Over 30 percent of Canadians over age 65 receive some kind of kind of care due to long-term health problems. Answer: TRUE Diff: 3 Type: TF Categories: Long-Term Care Insurance Financial Type: Qualitative Skill Type: Applied 15 Copyright © 2022 Pearson Canada Inc.

2) The cost of having an aide provide basic care such as assistance with feeding and dressing can easily cost over $50 000 per year. Answer: TRUE Diff: 2 Type: TF Categories: Long-Term Care Insurance Financial Type: Qualitative Skill Type: Applied 3) For long-term care insurance, all else equal, the higher the premium charged, the more comprehensive the coverage. Answer: TRUE Diff: 1 Type: TF Categories: Long-Term Care Insurance Financial Type: Qualitative Skill Type: Recall 4) Which of the following is correct regarding long-term care insurance? A) It has an elimination period before owners are eligible to have their long-term care costs covered. B) It is relatively inexpensive and good value for those over age 60. C) It covers most Canadians over age 65 who receive care due to a long-term health problem. D) It offers standard coverage and insurance premiums. Answer: A Diff: 3 Type: MC Categories: Long-Term Care Insurance Financial Type: Qualitative Skill Type: Recall 5) The similarity between disability income and long-term care insurance is A) they both require proof of income. B) they both have a waiting period. C) they both provide a death benefit. D) they both extend benefits beyond age 65. Answer: B Diff: 2 Type: MC Categories: Long-Term Care Insurance Financial Type: Qualitative Skill Type: Recall

6) What would be the out-of-pocket cost to an individual whose long-term care policy includes a 20 percent co-insurance clause? A current long-term illness has resulted in total expenses of $250 000. A) $250 000 B) $200 000 C) $50 000 D) $0 Answer: C Diff: 2 Type: MC Categories: Long-Term Care Insurance Financial Type: Quantitative Skill Type: Applied 7) Which best describes long-term care insurance? A) It provides a lump sum payment if you are diagnosed with an illness specified in the insurance contract. B) It provides an income if you need assistance with the everyday tasks of daily living. C) It reimburses specific expenses if you need assistance with everyday tasks of daily living. D) It only covers costs if someone needs to be placed in a long-term care facility. Answer: C Diff: 2 Type: MC Categories: Long-Term Care Insurance Financial Type: Qualitative Skill Type: Recall 8) Which of the following services is typically covered under a long-term care insurance policy? A) Transportation services B) Homemaking services C) Food preparation services D) Home maintenance services Answer: B Diff: 2 Type: MC Categories: Long-Term Care Insurance Financial Type: Qualitative Skill Type: Recall Life Insurance 1) The death benefit and cash values are not guaranteed in a universal life insurance contract but are in whole life. Answer: TRUE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

2) Mortgage life insurance is usually the best deal because the policy owners get a group discount through the lender. Answer: FALSE Diff: 3 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 3) The beneficiary of a life insurance policy cannot be the owner's estate. Answer: FALSE Diff: 3 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 4) If used properly, term life insurance can be an effective estate planning tool. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 5) Term life insurance is considered temporary insurance, since the policy is in effect for only a relatively short period of time. Answer: TRUE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 6) Non-forfeiture options allow you to re-instate your term insurance if you lapse the policy accidentally and have no medical conditions. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 7) Some disadvantages of term insurance are that it increases in cost when you renew it and that it has no value when it matures or you discontinue your policy. Answer: TRUE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

8) The problem with the cash value built up in a whole life insurance policy is that the money can only be used to pay off the policy or buy additional insurance. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 9) "Term-100" life insurance generally costs more than "minimum premium universal life." Answer: FALSE Diff: 3 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 10) Some advantages of whole life insurance are that it can provide coverage until death, the premiums and death benefit are guaranteed, and there is a savings or cash value feature. Answer: TRUE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 11) Universal life insurance is similar to whole life except it provides less guarantees. Answer: TRUE Diff: 3 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 12) Your life insurance policy can be terminated if you understate your age on the application form. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 13) The policy owner and the life insured are the same person. Answer: FALSE Diff: 1 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

14) If the premium on a term insurance policy is not paid on time, the policy will immediately lapse. That is, the policy will be terminated. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 15) Unless the policy contains a renewability option, a term life insurance policy will expire at the end of the term. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 16) Everything else being equal, the annual insurance premiums are higher for a male than for a female of the same age. Answer: TRUE Diff: 1 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 17) The number of deaths in a population or in a subgroup of the population is referred to as the morbidity rate. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 18) A first-time home buyer is often a first-time life insurance buyer. Answer: TRUE Diff: 1 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 19) The home owner is usually the beneficiary of a creditor insurance policy. Answer: FALSE Diff: 1 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

20) Personally owned term insurance is a little more expensive than creditor insurance. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 21) The death benefit represents the insurance-related expenses incurred by a life insurance company to provide the actual death benefit. Answer: FALSE Diff: 2 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 22) A disadvantage of term insurance is A) that it becomes more expensive when you renew it. B) the incontestability period. C) the policy owner must make the investment decisions. D) cannot be converted to permanent insurance without medical evidence. Answer: A Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 23) You are putting $300 per month into a savings account to pay for your child's post-secondary education. You worry that if you die before you get enough saved, your child will not be able to get a good education. Which of the following types of life insurance would best fit your needs at the lowest cost? A) Whole life B) Universal life C) Term life D) Variable life Answer: C Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied

24) In comparing term insurance with mortgage life insurance, which of the following is true? A) The premiums decrease with mortgage insurance but not with term insurance. B) Mortgage insurance is less expensive because of the group discount. C) The owner has more control with term insurance. D) Mortgage insurance is guaranteed renewable. Answer: C Diff: 3 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 25) Which of the following is the most important consideration in deciding on creditor insurance versus personally owned life insurance? A) Who the beneficiary is B) Who the creditor is C) What the face amount is D) What the term is Answer: A Diff: 3 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 26) If you buy a term insurance policy with a conversion option, this means that you A) can covert the policy to variable life insurance before it terminates. B) can convert the amount of coverage by a set amount at the renewal time. C) can convert it to a whole life policy before it terminates. D) can convert it to a longer term at the renewal time. Answer: C Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 27) Which of the following is true regarding policy dividends from insurance? A) They only apply to Universal Life policies. B) They are investment distributions. C) They only apply to participating policies. D) They are taxable profits to shareholders. Answer: C Diff: 3 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

28) Which of the following insurance types is only intended to provide insurance in the event of death? A) Whole life B) Term life C) Universal life D) Variable life Answer: B Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 29) When calculating the amount of life insurance premiums, underwriters of life insurance would not be concerned with A) the amount of coverage you desire. B) your age when you take out the policy. C) your health habits. D) the length of time you plan to keep the coverage. Answer: D Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Applied 30) Which of the following factors is most important in determining your life insurance premium rate? A) Your profession B) Your health C) Your net worth D) The amount of coverage Answer: B Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 31) If the policy owner decides to terminate the policy prior to death, the cash value can be used in a variety of ways. What is this called? A) Non-forfeiture options B) Cash value options C) Participating options D) Settlement options Answer: A Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 23 Copyright © 2022 Pearson Canada Inc.

32) Which of the following types of life insurance has a cash value component? A) Term life B) Dependant life C) Whole life D) Mortgage insurance Answer: C Diff: 2 Type: MC Categories: Permanent Insurance Financial Type: Qualitative Skill Type: Recall 33) A disadvantage of whole life policies is that A) the premiums are not predictable. B) the premiums are higher than for term policies. C) the face value of the policy can change over time. D) the cash value is not available to policy owners. Answer: B Diff: 2 Type: MC Categories: Permanent Insurance Financial Type: Qualitative Skill Type: Recall 34) What happens if a policyholder with a universal life insurance policy misses a payment? A) The policy is terminated after 30 days. B) The cash value is refunded and the policy terminated. C) Funds are withdrawn from the cash value to pay the premium. D) The policy is terminated after 60 days. Answer: C Diff: 3 Type: MC Categories: Permanent Insurance Financial Type: Qualitative Skill Type: Applied 35) What is the most important difference between universal life (UL) insurance and whole life (WL) insurance? A) With WL the policy would terminate after 30 days if a premium is missed. B) With UL the policy owner is responsible for selecting the investments. C) With WL the policy owner is responsible for selecting the investments. D) With UL the policy would terminate after 30 days if a premium is missed. Answer: B Diff: 3 Type: MC Categories: Permanent Insurance Financial Type: Qualitative Skill Type: Applied

36) Which is true in comparing universal life (UL) insurance and whole life (WL) insurance? A) With WL the cash value is not guaranteed. B) With UL you will likely receive policy dividends. C) With WL the premiums are flexible. D) With UL the premiums are flexible. Answer: D Diff: 3 Type: MC Categories: Permanent Insurance Financial Type: Qualitative Skill Type: Applied 37) If you have maximized your RRSP contributions, have positive cash flow and wish to maximize the transfer of wealth to your beneficiaries, which would be the most efficient choice of insurance? A) Universal life with level term insurance B) Term to 100 C) Whole life D) Universal Life with YRT Answer: D Diff: 3 Type: MC Categories: Permanent Insurance Financial Type: Qualitative Skill Type: Applied 38) The best description for a "participating policy" is that the owner is A) entitled to receive a share of the net operating profits of the insurance company. B) entitled to receive a refund when the insurance company has overcharged on premiums. C) entitled to receive dividends paid on the common stock of the insurance company. D) entitled to refunds from extra premiums from policyholders who have cancelled their policies. Answer: B Diff: 2 Type: MC Categories: Permanent Insurance Financial Type: Qualitative Skill Type: Recall 39) The payment that is made to a specified beneficiary when the life insured dies is correctly referred to as the A) face amount. B) life insurance amount. C) benefit. D) policy amount. Answer: A Diff: 1 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 25 Copyright © 2022 Pearson Canada Inc.

40) Which of the following situations will lead to a lower annual term insurance premium? A) Purchasing a 20-year term insurance policy instead of a 10-year term insurance policy B) Purchasing $400 000 of term insurance instead of $300 000 of term insurance C) Purchasing insurance when you are classified as a non-smoker instead of when you are classified as a smoker D) Purchasing insurance when you are a 40-year-old instead of when you are a 25-year-old Answer: C Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 41) Which of the following statements is true? A) Mortgage life insurance is a type of permanent insurance. B) Decreasing term insurance is a type of creditor insurance where the life insurance face amount and the premiums decrease each time a regular payment is made. C) Group term insurance premiums are usually more than the typical premiums an individual would pay because so many more people have to be insured. D) Creditor insurance is convenient to purchase. Answer: D Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 42) Which of the following statements is true about the cash value portion of a permanent life insurance policy? A) Cash value represents the portion of the premiums in excess of insurance-related expenses only. B) Cash value is invested by the insurance company on your behalf. C) Cash value is available to the policy owner after their death, but not prior to their death. D) The amount of cash value withdrawn is not subject to tax unless th e premiums paid exceed the amount of cash value. Answer: B Diff: 1 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

43) With respect to whole life insurance, all of the following statements are true except: A) The premium is fixed. B) The life insurance company selects the investments for the cash value portion of the policy. C) The cost of insurance decreases as the policy owner ages. D) The portion of the of the premium allocated to the cost of insurance portion of the policy increases over time. Answer: C Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 44) With respect to universal life insurance, all of the following statements are true except: A) The premium is fixed. B) The policy owner selects the investments for the cash value portion of the policy. C) There are two cost of insurance options to choose from. D) Everything else being equal, the cash value will increase faster if the policy owner selects the yearly renewable term (YRT) cost of insurance option. Answer: A Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 45) The least expensive type of permanent life insurance is A) minimum premium universal life insurance. B) term to 100 insurance. C) whole life insurance. D) term-20 insurance. Answer: B Diff: 1 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

46) Define and describe the underwriting process. Answer: Underwriting is the process all life insurance companies undertake to evaluate an insurance application. The application includes information on the applicant's age, sex, smoking status, driving record, and other health and lifestyle considerations. The insurance company may request that you take a medical exam, which may include an evaluation of your blood pressure, your cholesterol level, your weight-to-height ratio, whether you have a history of alcohol or drug abuse, or whether you participate in any dangerous sports. Some companies may offer multiple premium categories. Diff: 2 Type: ES Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 47) List the reasons why the annual insurance premiums for term insurance vary. Answer: - the term of the policy - the age of the applicant - the amount of insurance coverage - the sex of the applicant - the smoking status of the applicant - the family history of the applicant - the life insurance industry's understanding of the causes of the mortality rate Diff: 3 Type: ES Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall

48) Describe the advantages of purchasing personally owned term insurance instead of creditor insurance. Answer: With a personally owned term insurance policy, the policy owner owns the policy and determines who will be the beneficiary. With creditor insurance, the policy is owned and controlled by the creditor and the benefits are payable directly to the creditor. With a personally owned term insurance policy, the beneficiary determines how the life insurance proceeds will be used. With creditor insurance, the proceeds are used to pay off the credit balance. The policy owner of a personally owned term insurance policy may be able to decrease the insurance premium by decreasing the amount of insurance. With creditor insurance, although the credit balance decreases, the premium does not. Finally, a personally owned term insurance policy exists independent of any credit facility. That is, the coverage will not terminate once the credit balance is paid off. The policy is cancelled only when the policy owner decides to cancel it. Diff: 3 Type: ES Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 49) Compare and contrast whole life insurance and universal life insurance. Answer: Whole life and universal life are both permanent insurance policies that provide an opportunity to build cash value inside a savings account. The accumulated growth of savings inside these types of policies is tax-sheltered and can be useful tools for tax, retirement, and estate planning. The premium for a whole life insurance policy is fixed for the life of the policy; whereas in a universal life policy, the premium is flexible between a minimum and a maximum range. In a whole life policy, the insurance company selects the investments for the cash value. In a universal life policy, the policy owner controls the investment choices. Diff: 2 Type: ES Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall Determining the Amount of Life Insurance Needed 1) The income method, basing life insurance needs on multiples of current income, is the most useful method for determining how much life insurance a person should buy. Answer: FALSE Diff: 2 Type: TF Categories: Determining the Amount of Life Insurance Needed Financial Type: Qualitative Skill Type: Recall 29 Copyright © 2022 Pearson Canada Inc.

2) The budget method of determining life insurance needs considers a family's future expenses and goals. Answer: TRUE Diff: 2 Type: TF Categories: Determining the Amount of Life Insurance Needed Financial Type: Qualitative Skill Type: Recall 3) An advantage of the income method is that it does not take into consideration your age or your household situation. Answer: FALSE Diff: 2 Type: TF Categories: Determining the Amount of Life Insurance Needed Financial Type: Qualitative Skill Type: Recall 4) The income method, used to calculate your life insurance coverage, multiplies your current annual income by A) your expenses per month. B) the number of your dependants. C) an arbitrary number, such as 10. D) a present value factor of your future income earning potential. Answer: C Diff: 2 Type: MC Categories: Determining the Amount of Life Insurance Needed Financial Type: Qualitative Skill Type: Recall 5) The budget method for determining the amount of life insurance needed is based on A) your investments and cash flow. B) your annual income and expenses. C) you current situation and your company pension. D) your current situation and expected future needs. Answer: D Diff: 2 Type: MC Categories: Determining the Amount of Life Insurance Needed Financial Type: Qualitative Skill Type: Recall

6) The job marketability of your spouse A) would be considered in the budget method of determining life insurance needs. B) is used in the income method of determining life insurance needs. C) is not important in determining life insurance needs. D) is the main factor in determining whether you need life insurance. Answer: A Diff: 2 Type: MC Categories: Determining the Amount of Life Insurance Needed Financial Type: Qualitative Skill Type: Applied 7) Jenny has no dependants, an annual income of $50 000, and debt of $100 000. How much insurance should she buy using the income method and a factor of 10? A) none B) $100 000 C) $400 000 D) $500 000 Answer: D Diff: 3 Type: MC Categories: Determining the Amount of Life Insurance Needed Financial Type: Quantitative Skill Type: Applied 8) Sam's annual income is $60 000 and Jane is staying home looking after their children. If Sam died, they figure it would take $350 000 invested at four percent, compounded annually, to provide suitable income for the family for 15 years until the kids are more independent. They would also like to have $40 000 set aside for university for his two children. Sam and Jane's total RRSP savings are $120 000. How much life insurance does he need using the budget method? A) $270 000 B) $350 000 C) $390 000 D) $500 000 Answer: C Diff: 2 Type: MC Categories: Determining the Amount of Life Insurance Needed Financial Type: Quantitative Skill Type: Applied

9) Jane and Vitorio are both professionals earning roughly $140 000 each annually. If one of them died and their debts were gone, the survivor could easily live on their own income. They have a combined net worth of $950 000. They have debts in the amount of a $250 000 mortgage and car loans of $85 000. In addition, they pay off their credit cards each month, usually around $21 000. If anything should happen to either one of them, they want to leave their family debt-free. How much life insurance should they consider? A) They should each have a policy for $356 000. B) None because their net worth is $950 000. C) They should each have a policy for $475 000. D) They should each have a policy for $335 000. Answer: A Diff: 2 Type: MC Categories: Determining the Amount of Life Insurance Needed Financial Type: Quantitative Skill Type: Applied 10) Jane and Joe each earn $55 000 and have estimated that over the next 20 years will need 60 percent of total income to manage debt, pay off the mortgage, and pay for children's postsecondary education. How much life insurance should they apply for? (Investment returns are 6 percent, compounded annually.) A) $587 000 B) $1 320 000 C) $843 000 D) $757 000 Answer: D Diff: 3 Type: MC Categories: Determining the Amount of Life Insurance Needed Financial Type: Quantitative Skill Type: Applied 11) How much insurance would be needed to provide for a family for 20 years if the pre-tax income necessary to cover living expenses is $50 000 and the money can be invested at 6 percent, compounded annually? Answer: $50 000 × 11.47 (PVIFA, I = 6%, n = 20) = $573 500 Calculator P/Y =1; C/Y =1; N = 20; I/Y = 6; PMT = 50 000; FV = 0; CPT PV = $573 496 Diff: 3 Type: ES Categories: Determining the Amount of Life Insurance Needed Financial Type: Quantitative Skill Type: Applied

Contents of a Life Insurance Policy 1) After the incontestability period a life insurance policy cannot be cancelled by the insurance company. Answer: FALSE Diff: 1 Type: TF Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall 2) The major underwriting factors of life insurance are age, sex, smoking status, driving record, and other health and lifestyle considerations. Answer: TRUE Diff: 1 Type: TF Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 3) Critical illness insurance covers any life threatening illness as long as you live for at least 30 days following the diagnosis. Answer: FALSE Diff: 2 Type: TF Categories: Critical Illness Insurance Financial Type: Qualitative Skill Type: Recall 4) A rider is an option that allows you to customize an insurance policy, such as by adding term insurance for a child. Answer: TRUE Diff: 1 Type: TF Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall 5) A contingent beneficiary would receive the death benefit from a life insurance policy in the event that the primary beneficiary is no longer living. Answer: TRUE Diff: 2 Type: TF Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall

6) The grace period is typically 90 days. Answer: FALSE Diff: 1 Type: TF Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall 7) Reinstatement allows the policy owner to maintain the premiums determined when the original policy was issued. Answer: TRUE Diff: 1 Type: TF Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall 8) Whole life insurance has a premium that A) declines. B) is variable. C) is fixed. D) increases. Answer: C Diff: 2 Type: MC Categories: Life Insurance Financial Type: Qualitative Skill Type: Recall 9) The Wongs prefer whole life insurance because it will provide for their beneficiaries, regardless of how long they live, but they cannot afford the premiums for the full $1.1 million coverage they feel they need. What would be the best option for them? A) Purchase an affordable amount of whole life insurance and add a term rider. B) Purchase term insurance and add a guaranteed insurability rider. C) Purchase creditor insurance and group life insurance only. D) Purchase universal life insurance only. Answer: A Diff: 3 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Applied

10) Which considerations would be irrelevant when considering whether to cancel an old life insurance policy and start a new one? A) The suicide clause B) The premium schedule C) The incontestability dates D) The grace period Answer: D Diff: 2 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Applied 11) Which of the following is an important rider for a young person who is not sure of their future life insurance needs? A) Waiver of premium rider B) Guaranteed insurability rider C) Accidental death rider D) Term rider Answer: B Diff: 2 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Applied 12) The term grace period is very important to an insurance policy because A) it refers to living benefits that can be paid for a grace period prior to death in special circumstances. B) it refers to the period when a policy can no longer be contested by an insurance company. C) it refers to the period when the policy has lapsed and can be reinstated. D) it refers to the period when benefits are still payable while premiums are in arrears. Answer: D Diff: 2 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall

13) Which of the following is most correct about the guaranteed renewable clause in an insurance policy? A) It guarantees you can renew your insurance up to a certain age. B) It guarantees you can renew your insurance up to a certain age without an increase in premiums. C) It guarantees you can renew your mortgage insurance at the end of the term. D) It guarantees you can renew your disability insurance at the same premium rate. Answer: A Diff: 3 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall 14) In which case are life insurance benefits not payable? A) If the insured is killed in an accident ten days after the policy's effective date B) If the insured commits suicide within two years of the policy's effective date C) If the insured is diagnosed with a serious illness one month after the policy's effective date D) If the insured is killed in a car accident and the premium is 23 days overdue Answer: B Diff: 3 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Applied 15) Which of the following statements is most correct when naming a beneficiary on your life insurance policy? A) You can avoid probate and related expenses by naming your estate rather than a person as your beneficiary. B) You can change the beneficiary anytime you wish. C) You can name a dependent beneficiary. D) You can name only one beneficiary. Answer: B Diff: 2 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall 16) In order to reinstate a policy, a policy owner must do all of the following except A) provide evidence of insurability. B) reinstate the policy within three years of the policy having gone into lapse status. C) make all overdue payments. D) complete a reinstatement application. Answer: B Diff: 3 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall 36 Copyright © 2022 Pearson Canada Inc.

17) Which of the following is most correct about the conversion option in an insurance policy? A) It allows you to convert your term insurance policy into a whole life policy that will be in effect for the rest of your life. B) It allows you to convert your whole life insurance policy into a universal life policy that will be in effect for the rest of your life. C) It allows you to convert your term insurance policy into a universal life policy that will be in effect for the rest of your life. D) It allows you to convert your universal life insurance policy into a whole life policy that will be in effect for the rest of your life. Answer: A Diff: 3 Type: MC Categories: Contents of a Life Insurance Policy Financial Type: Qualitative Skill Type: Recall

Personal Finance, Canadian Ed., 5e (Madura) Chapter 10 - Investing Fundamentals Types of Investments 1) Bonds are certificates representing partial ownership of a firm. Answer: FALSE Diff: 1 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 2) The primary market is used by firms to raise funds and is a market where newly issued securities are traded. Answer: TRUE Diff: 2 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 3) Many more shares of stock are traded daily on the primary market than on the secondary market. Answer: FALSE Diff: 2 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Applied 4) A younger firm, with more growth opportunities, is less likely to pay dividends than an older company. Answer: TRUE Diff: 2 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 5) Growth stocks are likely to pay high dividends. Answer: FALSE Diff: 3 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

6) The higher the dividend paid by a firm, the lower its potential stock price appreciation. Answer: TRUE Diff: 3 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 7) Owners of common stock have the right to vote on key corporate issues and have the last claim to the profits of a company. Answer: TRUE Diff: 1 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 8) Because dividends on preferred shares are fixed, the price is not as volatile as those of common stock. Answer: TRUE Diff: 2 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 9) One of the advantages of investing in bonds is that their value is guaranteed and they pay predictable interest (coupon) payments. Answer: FALSE Diff: 3 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 10) One of the attractive features of mutual funds is that they offer investors a diversified portfolio and professional management. Answer: TRUE Diff: 1 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 11) Mutual fund gains can be in the form of dividends, interest and/or capital gains. Answer: TRUE Diff: 2 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

12) Real estate is a good investment option for individuals and it offers the same liquidity as stocks or bonds. Answer: FALSE Diff: 2 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 13) Preferred shares always pay their dividends. Answer: FALSE Diff: 2 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 14) Research shows that sophisticated investors are able to outperform various stock indexes on average. Answer: FALSE Diff: 1 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 15) More than half of all trading in the financial markets is attributable to individual investors. Answer: FALSE Diff: 1 Type: TF Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 16) Before you start to invest, you should ensure you have liquidity by owning A) a line of credit. B) money market securities. C) credit cards. D) corporate bonds. Answer: B Diff: 1 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

17) The market for newly issued securities and initial public offerings (IPOs) is the A) initial market. B) open market. C) primary market. D) secondary market. Answer: C Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 18) Institutional investors A) are responsible for most of the trading in financial markets. B) focus most of their investment decisions on less than one year. C) primarily select stocks using technical analysis. D) invest primarily in stocks rather than bonds. Answer: A Diff: 3 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Applied 19) In the secondary market, stock prices are A) determined by supply and demand. B) often undervalued. C) easy to predict. D) less expensive than on the primary market. Answer: A Diff: 1 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 20) Which is true about dividends? A) They are earnings distributed to shareholders. B) They usually provide the same return as bonds. C) They are retained earnings. D) They change each quarter. Answer: A Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

21) Which of the following is true about dividends? A) Dividends are not based on earnings. B) All large companies pay dividends. C) Dividends are usually around five percent of the stock price. D) Dividends are likely paid by older, established companies. Answer: D Diff: 3 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 22) Which of the following is true about growth stocks? A) They are more established companies. B) They mainly produce a return to investors via capital gains. C) They pay high dividends. D) They are the opposite of value stocks. Answer: B Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Applied 23) Stocks that are undervalued by the market for reasons other than the performance of their business are called A) growth stocks. B) value stocks. C) preferred stocks. D) dividend stocks. Answer: B Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 24) Which one thing do you always have with a common stock? A) Dividends B) Voting rights C) Capital appreciation D) A guarantee of minimum par value Answer: B Diff: 1 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

25) If you believe that a firm will grow rapidly in the future, you should buy its A) bonds. B) debentures. C) common stock. D) preferred stock. Answer: C Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Applied 26) Compared with common stock, preferred stock values A) are more variable. B) are less variable. C) are lower. D) are higher. Answer: B Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 27) The difference between common and preferred stock is that preferred stock A) may or may not receive dividends. B) has more predictable income and more safety. C) has greater potential for capital appreciation. D) is issued more frequently than common stock. Answer: B Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 28) If you wish to have a direct voice in the running of a company, you should purchase A) directorships. B) debentures. C) common stock. D) preferred stock. Answer: C Diff: 1 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

29) Corporate bonds A) offer a return to investors in the form of interest payments. B) maintain their value even in periods of changing interest rates. C) appreciate in value as the maturity date nears. D) lose value as the maturity date nears. Answer: A Diff: 1 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 30) Which of the following is true about mutual funds? A) They offer a diversified portfolio of stocks to investors with specific investment objectives. B) Professionally managed mutual funds consistently beat the TSX index returns. C) Dividends received from their investments are used to pay the fund's expenses. D) They provide access to professional money management for a low investment. Answer: D Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 31) Real estate returns can be in the form of A) capital gains, losses, interest and rental income. B) interest and dividends. C) capital gains, losses and dividends. D) capital gains, losses and rental income. Answer: D Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 32) One advantage of investing in your home compared to stocks, bonds, and mutual funds is A) real estate is more likely to go up in value. B) only fifty percent of the capital gains are taxed. C) the capital gains are usually tax exempt. D) real estate is less risky. Answer: C Diff: 1 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

33) Investing in growth stocks usually refers to A) younger companies paying large dividends. B) large companies paying large dividends. C) younger companies with potential for large capital gains. D) any company with a market expansion strategy. Answer: C Diff: 2 Type: MC Categories: Investment Return and Risk Financial Type: Qualitative Skill Type: Recall 34) If the market value for ABC Ltd. is and its number of shares outstanding is , the value of stock per share is A) $19.69. B) $1.969. C) $196.90. D) Insufficient information to answer this question Answer: B Diff: 2 Type: MC Categories: Types of Investments Financial Type: Quantitative Skill Type: Applied 35) Stocks that provide investors with periodic income in the form of large dividends are called A) large cap stocks. B) growth stocks. C) value stocks. D) income stocks. Answer: D Diff: 2 Type: MC Categories: Investment Return and Risk Financial Type: Qualitative Skill Type: Recall 36) The employees of financial institutions who make investment decisions are referred to as A) portfolio managers. B) institutional investors. C) individual investors. D) day traders. Answer: A Diff: 1 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall

37) Which of the following statements is true about publicly traded stock indexes, also known as exchange-traded funds? A) These investments are ideally suited for investors who want short-term growth. B) Since mutual funds outperform indexes, on average, it is better to invest in mutual funds. C) Exchange-traded funds trade like individual stocks. D) Investors can invest in specific sector indexes to achieve returns that move in tandem with the market as a whole. Answer: C Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 38) Which of the following statements is true about a real estate investment trust (REIT)? A) An investor needs a large amount of money to invest in a REIT. B) REITs are traded on a REIT exchange. C) The investments in a REIT are managed by real estate professionals. D) REITs are normally purchased through a real estate agent. Answer: C Diff: 2 Type: MC Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall 39) You have been given an overview of stocks, bonds, and mutual funds. Give one advantage and one disadvantage of investing in each of these. Answer: Stocks—Advantage: You may get a dividend and also capital appreciation if you pick a good stock. Disadvantage: You have all of your investment in one company and may lose everything. Bonds—Advantage: You have a predictable return that is lower risk with a highly rated bond. Disadvantage: The bond price may actually drop before you want to sell it and the capital gain potential is limited. Mutual funds—Advantage: You have a diversified investment run by a professional. Disadvantage: You have no personal control of your investment and the management expenses take away from your return. Diff: 2 Type: ES Categories: Investment Return and Risk Financial Type: Qualitative Skill Type: Applied

40) Define common stock and preferred stock. What are their similarities and differences? Answer: Common stock is a certificate issued by a firm to raise funds that represents partial ownership in the firm. Preferred stock is a certificate issued by a firm to raise funds that entitles shareholders to first priority (ahead of common stockholders) to receive dividend income. Common stock investors normally have the right to vote, elect the board of directors,, and are seeking a return on their investment from stock price appreciation rather than receiving dividend income. Preferred stock investors normally do not have the right to vote nor elect the board of directors. These investors are seeking regular income that comes from dividend payments rather than the potential for stock price appreciation. Preferred stock prices are not as volatile as common stock prices. Both types of stock have the potential to pay dividends. Diff: 2 Type: ES Categories: Types of Investments Financial Type: Qualitative Skill Type: Recall Investment Return and Risk 1) Savvy investors can find investments that generate high rates of return with low levels of risk. Answer: FALSE Diff: 2 Type: TF Categories: Review Components of a Financial Plan Financial Type: Qualitative Skill Type: Recall 2) For people in the highest marginal tax bracket, a $1000 capital gain would be taxed less than $1000 dividend income. Answer: TRUE Diff: 3 Type: TF Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 3) Ellie bought a stock for $18 and sold it for $26. She has a taxable capital gain of $4. Answer: TRUE Diff: 3 Type: TF Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied

4) An investor whose income is less than $20 000 will pay more tax on capital gains than on the same amount of divided income. Answer: TRUE Diff: 3 Type: TF Categories: Investment Return and Risk Financial Type: Qualitative Skill Type: Applied 5) The standard deviation of a stock's monthly returns is an indication of its investment risk. Answer: TRUE Diff: 3 Type: TF Categories: Risk of Investing Financial Type: Qualitative Skill Type: Recall 6) When the Samsung share price fell due to disappointment after the launch of their new phone, that is an example of systematic risk. Answer: FALSE Diff: 3 Type: TF Categories: Risk of Investing Financial Type: Qualitative Skill Type: Applied 7) A stock with larger standard deviations of returns has higher risk than a stock with lower standard deviations. Answer: TRUE Diff: 1 Type: TF Categories: Risk of Investing Financial Type: Qualitative Skill Type: Recall 8) An investment with a beta of less than 1 suggests that the volatility of the investment and its performance will be greater than that of the stock market. Answer: FALSE Diff: 2 Type: TF Categories: Risk of Investing Financial Type: Qualitative Skill Type: Recall

9) Of the following, which is not used in measuring a stock's return? A) The price of the stock at the time of purchase B) The average price of stock during the period owned C) The price of stock at the time of sale D) The dividends earned during the period owned Answer: B Diff: 1 Type: MC Categories: Investment Return and Risk Financial Type: Qualitative Skill Type: Recall 10) If you invest $1000 in stock that pays no dividends and sell the stock exactly one year later for $1100, what will be your return? (Ignore commissions and trading fees.) A) 1 percent B) 5 percent C) 10 percent D) 100 percent Answer: C Diff: 2 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 11) If you purchase 100 shares of Ajax Corporation for $15 a share and one year later sell it for $20 a share, what was your return if the stock paid $2 per share dividends? (Ignore commissions and trading fees. Round to the nearest whole percent.) A) 10 percent B) 33 percent C) 47 percent D) 40 percent Answer: C Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 12) For someone whose salary is in the highest marginal tax bracket, what type of investment income receives the lowest tax consequences? A) Dividends B) Interest C) Capital gains D) Trust income Answer: C Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Qualitative Skill Type: Applied 12 Copyright © 2022 Pearson Canada Inc.

13) If you predicted that a stock would be worth $40 in five years and that you wanted to get a nine percent average annual return, what price should you be willing to pay for it now? (Assume no fees or taxes.) A) $38.53 B) $22.00 C) $26.00 D) $25.54 Answer: C Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 14) A stock was purchased at $23, sold exactly two years later at $25.50, and paid a $0.70 dividend per year. What was the annual return on investment? A) 7 percent B) 8.5 percent C) 17 percent D) 10.9 percent Answer: B Diff: 2 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 15) Given the bank rate of 3.5 percent, and a corporate bond that will pay 10 percent. What is the risk premium? A) 13.5 percent B) 6.5 percent C) 7.5 percent D) 0 percent Answer: B Diff: 2 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied

16) Given the bank rate of 3 percent, purchasing an investment with a 9 percent risk premium means A) the investor is expecting a 12 percent return and will likely get close to that. B) the investor is expecting a 9 percent return but will not likely get that exact amount. C) the investor is expecting a 12 percent return but will not likely get that exact amount. D) the investor is expecting a 9 percent return and will likely get close to that. Answer: C Diff: 2 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 17) You want to save $10 000 toward the down payment on a house in five years. If you can earn 8 percent (compounded monthly), approximately how much should you save each month to reach this short-term goal? A) $142 B) $136 C) $167 D) $131 Answer: B Diff: 2 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 18) For your retirement you want to have enough funds in your RRSPs to provide an income stream of $22 000 for 30 years. How much money would you need to have accumulated if your RRSPs averaged a real return of four percent per year? (Round to the nearest thousand) A) $384 000 B) $627 000 C) $660 000 D) $380 000 Answer: D Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied

19) You are investing a lump sum of $7200 with a goal of saving total in 30 years. What annual interest rate on your investments would you need to reach your goal? A) 15 percent B) 11.7 percent C) 11.3 percent D) 12.4 percent Answer: B Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 20) How much more will you earn on a lump sum investment of $20 000 if you increase your risk tolerance to improve your return from 6 percent to 8 percent over a 20-year period? A) $29 077 B) $31 065 C) $28 555 D) $8000 Answer: A Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 21) You have invested $16 000. How long it will approximately take to accumulate $100 000 at the fairly conservative rate of 6 percent? A) 38 years B) 34 years C) 28 years D) 31 years Answer: D Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied

22) You are investing to achieve the following goals: A down payment for a cottage in the amount of $8000 in six years, $4000 for a trip to Europe in three years, and to supplement retirement income in 24 years. If you can earn 7 percent compounded monthly on your investments, how much should you be saving each month? A) $392 B) $377 C) $409 D) $396 Answer: A Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 23) If you wish to supplement your retirement by saving in 25 years, how much more would you have to save monthly if you saved the money outside rather than in an RRSP? Consider that investment returns should provide a yield of 8.5 percent compounded monthly and your tax rate is 30 percent, so the after tax return would be 5.95 percent. A) $9.71 B) $87.63 C) $97.05 D) $101.05 Answer: C Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 24) It is now 2030 and you have saved $250 000 since you started saving in 2007. During the same period inflation averaged 3 percent. What would your be worth in 2007 dollars? A) $493 397 B) $126 673 C) $121 891 D) $236 047 Answer: B Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied

25) You have been very risky with your investments but, having just turned 50 years of age, your investment adviser suggests you reallocate to reduce your risk. He advises you that your returns will be lower but it would be a wise move. You have $236 000 saved and wish to retire with $300 000. When will you be able to achieve this if the return is now 5.5 percent compounded monthly? A) In 4.37 years B) In 5.5 years C) In 9.91 years D) In 1.3 years Answer: A Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 26) Your after tax return on your investments is 2.8 percent compounded monthly. Approximately how much will you have to save per month in order to have $80 000 in 25 years to buy a retirement cottage? Assume your investments are not tax sheltered. A) $123 B) $193 C) $189 D) $184 Answer: D Diff: 3 Type: MC Categories: Investment Return and Risk Financial Type: Quantitative Skill Type: Applied 27) Which of the following is a good example of systematic risk? A) The low interest rates in effect since the 2008-2009 credit crisis B) The decline in Nortel stock price after the crash of 2000-2001 C) The decline in Blackberry stock price since the 2008-009 credit crisis D) The decline in the stock price of Canadian banks in the 2008-2009 credit crisis Answer: A Diff: 3 Type: MC Categories: Risk of Investing Financial Type: Qualitative Skill Type: Applied

28) To measure an investment's risk, which of the following would you use? A) Time value of money B) Range of returns on the entire market C) Standard deviation of returns D) Standard deviation of prices Answer: C Diff: 3 Type: MC Categories: Risk of Investing Financial Type: Qualitative Skill Type: Recall 29) Amalgamated Monkey Nuts Inc. has a range of returns between 4 percent and 7 percent while Moose Pasture Minerals Ltd. has a range of returns between 3 percent and 10 percent. This means A) Amalgamated Monkey Nuts Inc. is a less risky stock. B) Moose Pasture Minerals Ltd. is a less risky stock. C) Amalgamated Monkey Nuts Inc. is a more risky stock. D) Moose Pasture Minerals Ltd. is a better investment. Answer: A Diff: 2 Type: MC Categories: Risk of Investing Financial Type: Qualitative Skill Type: Applied 30) Alpha stock has the following monthly returns: 0.6, 1.3, 3.4, 2.2, -0.9. What is Alpha stock's range of returns? A) 4.3 B) 2.8 C) 1.3 D) 2.5 Answer: A Diff: 3 Type: MC Categories: Risk of Investing Financial Type: Quantitative Skill Type: Applied 31) A very risky investment will normally have A) a low standard deviation. B) a relatively wide range of returns.. C) a beta much less than one. D) a beta equal to one. Answer: B Diff: 2 Type: MC Categories: Risk of Investing Financial Type: Qualitative Skill Type: Recall 18 Copyright © 2022 Pearson Canada Inc.

32) Which of the following is a subjective measure of risk? A) Standard deviation of returns B) Beta C) Bond rating D) Range of returns Answer: C Diff: 2 Type: MC Categories: Risk of Investing Financial Type: Qualitative Skill Type: Recall 33) Find an online questionnaire designed to determine your tolerance to investment risk. Explain how the results would suggest you invest funds for the following goals, purchasing a home in seven years and for retiring in 35 years. Indicate the asset allocation you would use for each of these purposes based on your risk tolerance. Explain why the textbook suggests that your asset allocation in your early career should be mostly stocks and in retirement should be mostly bonds and why there could be exceptions to this general rule. Answer: Answer will vary with each student's assessment of his or her own risk level, but it should be clear that he or she understands the risk-reward level of each asset class he or she will invest in. Ideally the student should indicate that with a longer time horizon, there is time to ride out short-term volatility, and that if a person is retired and drawing on their funds, then volatility works against them. Therefore they should indicate a more conservative assets mix for the seven year goal. Exceptions: If a young person would be very uncomfortable with volatility, then they should not have an aggressive portfolio. If an older person is comfortable with volatility and has high net worth, so is not forced to draw on investments which have done poorly, then an aggressive portfolio could be appropriate for them. Diff: 3 Type: ES Categories: Investment Return and Risk Financial Type: Qualitative Skill Type: Applied Trade-off between Return and Risk 1) A stock trading at $20 pays a dividend annually of $0.50. The yield is 2.5 percent. Answer: TRUE Diff: 1 Type: TF Categories: Trade-off Between Return and Risk Financial Type: Quantitative Skill Type: Applied 19 Copyright © 2022 Pearson Canada Inc.

2) An investment with a return of 9.5 percent, while the government rate for a similar investment is 3.5 percent, has a 6 percent risk premium. Answer: TRUE Diff: 2 Type: TF Categories: Trade-off Between Return and Risk Financial Type: Quantitative Skill Type: Applied 3) Low-risk bonds tend to offer higher interest payments. Answer: FALSE Diff: 1 Type: TF Categories: Trade-off Between Return and Risk Financial Type: Qualitative Skill Type: Recall 4) A risk-free investment has no risk premium. Answer: TRUE Diff: 1 Type: TF Categories: Trade-off Between Return and Risk Financial Type: Qualitative Skill Type: Recall 5) The return-risk relationship means A) the ideal investment has high return and low risk. B) the downside risk is all that really matters to investors. C) the higher the return expectation of an investment, the greater the uncertainty. D) a diversified mutual fund will have low risk. Answer: C Diff: 2 Type: MC Categories: Trade-off Between Return and Risk Financial Type: Qualitative Skill Type: Recall 6) If you have $3000 to invest, but could need the money at any time in the next year, you should A) put the money in a liquid short-term interest-bearing investment. B) invest in a one-year closed GIC. C) put the money in a dividend mutual fund. D) invest in an asset allocation mutual fund. Answer: A Diff: 2 Type: MC Categories: Trade-off Between Return and Risk Financial Type: Qualitative Skill Type: Applied

7) In December 1977 the TSX index was 1059. In December 2007 the TSX index was What has been the approximate historical return on equities during this period? A) 4.2 percent B) 10.1 percent C) 15.6 percent D) 8.4 percent Answer: D Diff: 3 Type: MC Categories: Trade-off Between Return and Risk Financial Type: Quantitative Skill Type: Applied

8) The returns on bond investments may come from A) fixed coupon interest only. B) fixed coupon interest and bond price appreciation. C) fixed coupon dividend and bond price appreciation. D) bond price appreciation only. Answer: B Diff: 2 Type: MC Categories: Trade-off Between Return and Risk Financial Type: Qualitative Skill Type: Recall 9) What is the required return for an investment when the real rate of return is 3 percent, the expected inflation premium is 2 percent, and the risk premium is 2 percent? A) 2 percent B) 4 percent C) 5 percent D) 7 percent Answer: D Diff: 2 Type: MC Categories: Trade-off Between Return and Risk Financial Type: Quantitative Skill Type: Applied 10) What is the inflation premium for an investment when the real rate of return is 3 percent, the risk premium is 2 percent, and the required return is 9 percent? A) 2 percent B) 4 percent C) 5 percent D) 7 percent Answer: B Diff: 2 Type: MC Categories: Trade-off Between Return and Risk Financial Type: Quantitative Skill Type: Applied 21 Copyright © 2022 Pearson Canada Inc.

11) In Canada, the closest thing to a completely risk-free investment is A) the three month Government of Canada Treasury Bill. B) the nine month Government of Canada Treasury Bill. C) the one year Government of Canada Bond. D) the six month Government of Canada Treasury Bill. Answer: A Diff: 1 Type: MC Categories: Trade-off Between Return and Risk Financial Type: Qualitative Skill Type: Recall 12) Describe three applications used to judge an investment's risk. Do you feel these methods give a full explanation of how investors feel about risk? Answer: Students will discuss "range of returns," "standard deviation," or Beta, or perhaps other subjective methods. Student may realize that most people are very concerned about the negative side of risk, but not very concerned about the positive side. In other words, they would not be concerned if their investments doubled in value, but they would be highly concerned if they dropped by 50 percent. This starts to lead into topics in behavioural finance. Diff: 3 Type: ES Categories: Trade-off Between Return and Risk Financial Type: Qualitative Skill Type: Recall 13) Last year you held the following investments: $50 000 in bonds, which earned 5.5 percent last year $5000 in shares of Moose Pasture Minerals, which lost 22 percent last year $10 000 in shares of Amalgamated Monkey Nuts, which earned 12 percent last year $20 000 in Offshore Diversification Mutual Fund, which earned 8 percent last year $15 000 in XIU exchange-traded fund, and the TSX was up 11 percent last year Show how you determine the return on the portfolio for last year, and what it is worth now? Answer: 50 000 (.50% × 5.5%) = 2.75 -5000 (.05 × 22%) = -1.1 10 000 (.10 × 12%) = 1.2 20 000 (.2 × 8%) = 1.6 15 000 (.15 × 11%) = 1.65 Total 100 000 @ 6.1% 6.1 percent, and it is worth $106 100. Diff: 3 Type: ES Categories: Trade-off Between Return and Risk Financial Type: Quantitative Skill Type: Applied 22 Copyright © 2022 Pearson Canada Inc.

How Diversification Reduces Risk 1) Asset allocation is the process of allocating money across financial assets with the objective of achieving a desired return while maintaining risk at a tolerable level. Answer: TRUE Diff: 1 Type: TF Categories: Diversification Reduces Risk Financial Type: Qualitative Skill Type: Recall 2) Studies have shown that less than 10 percent of a portfolio's return was the result of asset allocation. Answer: FALSE Diff: 1 Type: TF Categories: Diversification Reduces Risk Financial Type: Qualitative Skill Type: Recall 3) Which of the following is not an example of an asset category? A) Mutual funds B) Stocks C) Bonds D) Cash Answer: A Diff: 2 Type: MC Categories: Diversification Reduces Risk Financial Type: Qualitative Skill Type: Recall 4) The main benefit of portfolio diversification is that A) it gives you a reason to buy different types of financial assets. B) it allows you to generate different types of investment income, including interest, dividends, and capital gains. C) it reduces the exposure of your investments to the adverse effects of any individual investment. D) it helps you diversify risk by investing in perfectly positively correlated investments. Answer: C Diff: 2 Type: MC Categories: Diversification Reduces Risk Financial Type: Qualitative Skill Type: Recall

5) A portfolio composed of highly volatile investments will exhibit A) low volatility. B) high volatility. C) no volatility. D) some volatility. Answer: B Diff: 2 Type: MC Categories: Diversification Reduces Risk Financial Type: Qualitative Skill Type: Recall 6) The benefits of portfolio diversification are limited when individual investments exhibit A) low positive correlation. B) high negative correlation. C) low negative correlation. D) high positive correlation. Answer: D Diff: 2 Type: MC Categories: Diversification Reduces Risk Financial Type: Qualitative Skill Type: Recall Strategies for Diversifying 1) Investing prescribed percentages in stocks, bonds, and preferred shares is a type of asset allocation. Answer: TRUE Diff: 2 Type: TF Categories: Strategies for Diversifying Financial Type: Qualitative Skill Type: Recall 2) When diversifying a portfolio, you should select investments with high positive correlation. Answer: FALSE Diff: 3 Type: TF Categories: Strategies for Diversifying Financial Type: Qualitative Skill Type: Recall 3) Industry diversification will prevent losses when economic conditions are poor. Answer: FALSE Diff: 1 Type: TF Categories: Strategies for Diversifying Financial Type: Qualitative Skill Type: Recall

4) You can reduce your investment risk most effectively through A) asset allocation. B) limiting the time horizon. C) diversifying stocks. D) maximizing the beta. Answer: A Diff: 2 Type: MC Categories: Strategies for Diversifying Financial Type: Qualitative Skill Type: Recall Asset Allocation Strategies 1) Asset allocation improves diversification, but has no effect on the risk premium of your portfolio. Answer: FALSE Diff: 2 Type: TF Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 2) An investor's willingness to accept (or not accept) risk in their investments is referred to as risk intolerance. Answer: FALSE Diff: 3 Type: TF Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Applied 3) A well diversified stock portfolio provides the greatest diversification benefits. Answer: FALSE Diff: 1 Type: TF Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 4) Stocks and bonds are highly correlated investments. Answer: FALSE Diff: 1 Type: TF Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall

5) In a diversified portfolio, some assets will decrease in value and, at the same time, some assets will increase in value. Answer: TRUE Diff: 1 Type: TF Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 6) Investment risk refers to A) the risk premium in the markets. B) Beta. C) the risk of investments dropping in value. D) volatility in investment returns. Answer: D Diff: 3 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 7) You have $10 000 to invest now and can add $550 a month, have a moderate risk profile, and would like to set these funds aside for retirement in 20 years. Your most appropriate option would be to A) put the money in a money market savings account. B) buy one-year GICs. C) invest in small cap mutual funds. D) invest in mutual funds managed by the asset allocation method. Answer: D Diff: 2 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Applied 8) Which portfolio provides the advantage of asset allocation? A) A portfolio invested in stocks of several different countries to maximize return with less risk B) A portfolio invested in bonds and stocks in equal amounts to maximize return with less risk C) A portfolio invested in a variety of assets to maximize return with less risk D) A fully diversified equity portfolio eliminating unsystematic risk Answer: C Diff: 3 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Applied

9) An income trust A) pays taxes on its earnings and then distributes the remainder of the cash flow to investors. B) is a good replacement for bonds in your asset allocation. C) is similar to a stock investment in price volatility but pays all cash flows to investors. D) has tax implications similar to dividends. Answer: C Diff: 2 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 10) Your investment portfolio matches your risk profile perfectly but you are not meeting your investment goals. You should remedy this by A) increasing the high-risk portion of the portfolio to achieve higher returns. B) cutting expenses to increase savings and stay with the same asset allocation. C) reviewing your investment goals to see if they are realistic and make adjustments. D) selling all of the investment assets to reinvest in low risk investments. Answer: C Diff: 3 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Applied 11) Which one of the following is a true statement with respect to investing in bonds? A) Investing in bonds reduces your exposure to interest rate risk. B) The market value of bonds increases when interest rates rise. C) Including bonds in your stock portfolio will lower your portfolio's overall risk. D) Investors who are more concerned about periodic income should not invest in bonds. Answer: C Diff: 2 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 12) Income trusts are referred to as a flow-through investment vehicle because A) investor deposits flow through an income trust and are used to purchase income-producing assets. B) a capital guarantee flows through an income trust, thereby providing investors with a guaranteed refund of their principal. C) an income trust only invests in flow through companies. D) almost 100 percent of the income generated by the trust assets is "flowed through" to investors. Answer: D Diff: 3 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 27 Copyright © 2022 Pearson Canada Inc.

13) Which of the following is not a category of income trusts? A) Utility trusts B) Partnership investment trusts C) Real estate investment trusts D) Royalty income trusts Answer: B Diff: 3 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall 14) In a strategic asset allocation strategy, the portfolio allocation is A) adjusted based on shifts in market conditions or expectations. B) adjusted based on short-term expectations. C) returned to its original asset allocation by selling investments that have increased in value and by buying investments that have decreased in value. D) returned to its original asset allocation by selling investments that have decreased in value and by buying investments that have increased in value. Answer: A Diff: 3 Type: MC Categories: Asset Allocation Strategies Financial Type: Qualitative Skill Type: Recall Factors That Affect Your Asset Allocation Decision 1) Over time, investors should gradually shift away from bonds and into high growth stocks. Answer: FALSE Diff: 2 Type: TF Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Qualitative Skill Type: Recall 2) A useful rule of thumb that you can use to determine what percentage of your portfolio should be in stocks at any given time is 100 minus your age. Answer: TRUE Diff: 1 Type: TF Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Qualitative Skill Type: Recall

3) If you can tolerate a high level of risk, you should concentrate your portfolio into a small group of stocks that you believe will generate the investment return that you need. Answer: FALSE Diff: 1 Type: TF Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Qualitative Skill Type: Applied 4) Which of the following statements most correctly reflects how you should invest based on your stage in life? A) Investors in the early life stage need easy access to funds, so they should invest in individual bonds. B) Investors nearing retirement age should invest in growth stock mutual funds. C) Investors who have many years of work ahead of them may invest in stocks of smaller firms. D) Money market investments are the most appropriate investment for investors nearing retirement age. Answer: C Diff: 2 Type: MC Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Qualitative Skill Type: Applied 5) Investors who have a realistic outlook for the economy A) tend to always generate a very strong return when economic conditions are favourable. B) recognize that risky investments could easily lead to large losses. C) should seriously consider safer types of investments. D) rarely lose money in the market. Answer: B Diff: 2 Type: MC Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Qualitative Skill Type: Recall 6) Which of the following criteria must always be considered when making asset allocation decisions? A) Economic conditions B) Real estate conditions C) Market expectations D) Your risk tolerance Answer: D Diff: 2 Type: MC Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Qualitative Skill Type: Recall

7) Explain how it is possible to add more risky assets to a portfolio and reduce the overall risk. Give a specific example of how this could be done for a conservative portfolio. Answer: Answers will vary. However, the student needs to indicate how correlation of different investments impacts the overall risk in a portfolio. The adding in of risky assets which are negatively correlated to the portfolio would reduce the overall risk and increase return. They also need to give an example of a conservative portfolio, with more than 70 percent in bonds and indicate how adding equities could reduce the volatility. Diff: 3 Type: ES Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Qualitative Skill Type: Recall 8) Describe how someone's risk tolerance directly impacts their retirement planning. Use an example to illustrate how much difference it would make if someone was a conservative investor who averaged a six percent return over 35 years on their savings versus another more aggressive investor who averaged eight percent over the same period. Answer: Stocks are part of the investment plan and the overall financial plan. Purchasing stocks requires liquidity or financing/borrowing. In considering purchasing individual stocks, it should be done to increase your wealth either in the short term or long term. Conservative guy invests $500 per month in his RRSP for 35 years (form age 30 to age 65) P/Y = 12; C/Y = 1; N = 35 × 12 = 420; PV = 0; I/Y = 6%; PMT = -$500; CPT FV = $686 802 Aggressive lady invests $500 per month in her RRSP for 35 years (from age 30 to age 65) P/Y = 12; C/Y = 1; N = 35 × 12 = 420; PV = 0; I/Y = 8%; PMT = -$500; CPT FV = $1 071 284 The aggressive investor would have more lifestyle choices in retirement, with more than 50% more money, even though she only had a 2% better rate of return. Diff: 3 Type: ES Categories: Factors That Affect Your Asset Allocation Decision Financial Type: Quantitative Skill Type: Applied Learning from Investment Mistakes 1) Taking a loan for $5000 to invest in a conservative portfolio is always more risky than saving $5000 to invest in the conservative portfolio. Answer: TRUE Diff: 3 Type: TF Categories: Learning from Investment Mistakes Financial Type: Quantitative Skill Type: Applied

2) Which of the following is good investment advice? A) Set high goals and expectations for your investments even if they are unrealistic. B) Investing in mutual funds is an effective way to diversify if you have $200 per month to invest. C) If you are not getting the returns you need on your savings, select a more risky investment. D) If you own a stock that has dropped 50 percent in value, purchase more to average your price down. Answer: B Diff: 2 Type: MC Categories: Learning from Investment Mistakes Financial Type: Qualitative Skill Type: Applied 3) Buying more of a stock that has just plummeted in value is an example of A) averaging your cost base down. B) purchasing stocks on sale. C) dollar cost averaging. D) taking excessive risk to recover from a losing position. Answer: D Diff: 2 Type: MC Categories: Learning from Investment Mistakes Financial Type: Qualitative Skill Type: Recall

Personal Finance, Canadian Ed., 5e (Madura) Chapter 11 - Investing in Stocks Stock Exchanges 1) The Toronto Stock Exchange (TSX) is the only Canadian stock exchange. Answer: FALSE Diff: 1 Type: TF Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall 2) Floor traders no longer exist on the TSX because trades are now handled electronically. Answer: TRUE Diff: 1 Type: TF Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall 3) The over-the-counter (OTC) market is a non-transparent communications network. Answer: TRUE Diff: 1 Type: TF Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall 4) Market makers are required to help make markets more liquid by taking the same position as those who want to buy or sell the stock. Answer: FALSE Diff: 2 Type: TF Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall 5) Computer systems that match up buyers and sellers of stocks or bonds are A) the NYSE Euronext exchange. B) the over-the-counter (OTC) markets. C) the Toronto Stock Exchange. D) the national stock exchanges. Answer: B Diff: 2 Type: MC Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall

6) Which are the main Canadian stock exchanges? A) TSX, TSX Venture Exchange and Montreal Exchange B) TSX, NASDAQ, and Montreal Exchange C) TSX, TSX Venture Exchange and Canadian OTC D) TSE, NASDAQ and Canadian OTC Answer: A Diff: 2 Type: MC Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall 7) The price at which a buyer would like to purchase a stock is referred to as the A) market maker price. B) buy price. C) bid price. D) ask price. Answer: C Diff: 2 Type: MC Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall 8) The price at which a seller would like to sell a stock is referred to as the A) market maker price. B) buy price. C) bid price. D) ask price. Answer: D Diff: 2 Type: MC Categories: Stock Exchanges Financial Type: Qualitative Skill Type: Recall Stock Quotations 1) Company's with lower P/E ratios are usually better long term investments than those with higher P/E ratios. Answer: FALSE Diff: 2 Type: TF Categories: Stock Quotations Financial Type: Qualitative Skill Type: Applied

2) The most up to date stock quotes can be found in a financial newspaper. Answer: FALSE Diff: 2 Type: TF Categories: Stock Quotations Financial Type: Qualitative Skill Type: Recall 3) Which of the following would not be included in a stock quotation? A) Ticker symbol B) P/E ratio C) Net income D) Previous close Answer: C Diff: 2 Type: MC Categories: Stock Quotations Financial Type: Qualitative Skill Type: Recall Purchasing or Selling Stocks 1) A discount brokerage firm executes transactions and provides investment advice at a price less than that of full-service brokers. Answer: FALSE Diff: 1 Type: TF Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Recall 2) One study tracked recommendations by stockbrokers and showed that they make "buy" recommendations hundreds of times more often than "sell" recommendations. Answer: TRUE Diff: 2 Type: TF Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Recall 3) Limit orders are always preferable to market orders. Answer: FALSE Diff: 2 Type: TF Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Applied

4) The risk of a market order is that you could pay more for a stock than you anticipated. Answer: TRUE Diff: 2 Type: TF Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Applied 5) When using a sell stop order to sell 100 shares of ABCO at $30, it could happen that you only get $2500 for the transaction. Answer: TRUE Diff: 3 Type: TF Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Applied 6) The Investment Industry Regulatory Organization of Canada (IIROC) limits the amount that can be borrowed for a TSX list stock to 70% for stocks that trade for more than $5 per share. Answer: FALSE Diff: 2 Type: TF Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Recall 7) A stock purchase of 100 shares of CN at $110 per share requiring a 50% margin means you would need $5,500 cash to make the purchase. Answer: TRUE Diff: 3 Type: TF Categories: Buying Stocks on Margin Financial Type: Quantitative Skill Type: Applied 8) When you buy a stock on margin, your return is magnified if the stock goes up in value. Answer: TRUE Diff: 1 Type: TF Categories: Buying Stocks on Margin Financial Type: Qualitative Skill Type: Recall 9) A margin call is a request from a brokerage firm for the investor to increase the cash in the account in order to bring the margin back up to the minimum level. Answer: TRUE Diff: 2 Type: TF Categories: Buying Stocks on Margin Financial Type: Qualitative Skill Type: Recall

10) Margin refers to the amount of your own cash that you must use to purchase stock. Answer: TRUE Diff: 1 Type: TF Categories: Buying Stocks on Margin Financial Type: Qualitative Skill Type: Recall 11) What is the safest type of stock order to use? A) Market order B) Limit order C) Buy stop order D) Sell stop order Answer: B Diff: 3 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Quantitative Skill Type: Applied 12) What additional risk is involved when buying stock on margin? A) The interest rate charge B) The leverage C) A margin call D) The amount borrowed Answer: B Diff: 3 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Quantitative Skill Type: Applied 13) If IIROC limits require margin on a stock of 60 percent, initially how much money would you need to personally invest to purchase worth of BMO stock? A) $7000 B) $6000 C) $10 000 D) It depends on the price. Answer: B Diff: 2 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Quantitative Skill Type: Applied

14) You want to purchase 100 shares of CIB for a maximum price of $3000 and it is currently trading at $33. Which order should you place? A) A buy stop order to purchase 100 shares of CIB at $30 good until filled B) A limit order to buy 100 shares of CIB at $30 good until filled C) A market order to buy 100 shares of CIB at $30 D) A market order to purchase 100 shares of CIB at $33 Answer: B Diff: 3 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Quantitative Skill Type: Applied 15) What can be said about broker and analyst recommendations? A) They generally beat the markets. B) They tend to be optimistic on "buy" recommendations. C) They cannot own the stocks they recommend. D) They tend to give more "sell" recommendations. Answer: B Diff: 2 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Recall 16) Which of the following orders to buy or sell is an odd lot? A) 1000 shares at $10 B) $3780 worth of shares at $20 C) $8600 worth of shares at $4.30 D) 500 shares at $22.50 Answer: B Diff: 3 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Quantitative Skill Type: Applied 17) If you need to be sure you will sell your shares of a certain stock if the price drops below a certain threshold, which type of order should you place? A) Sell stop order for price X B) Limit order to sell for price X C) Market order to sell for price X D) Short sell order for price X Answer: A Diff: 3 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Applied

18) An order to execute a transaction to buy or sell a stock at its prevailing price is called a A) limit order. B) stock order. C) market order. D) good till cancelled order. Answer: C Diff: 1 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Recall 19) If you need to be sure to buy shares of a company when the price rises above a certain level, you need to use a A) buy limit order. B) buy stop order. C) buy market order. D) buy price order. Answer: B Diff: 3 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Recall 20) You bought IBM stock at $70 per share. It is now $120 a share. You think it could go higher but you are nervous that it could go down and you would lose your gains. To protect your gains but still give yourself the chance to make future profits, you could place a A) limit order to sell for $130 a share. B) sell stop order at $110 a share. C) limit order to sell for $110 a share. D) sell stop order at $130 a share. Answer: B Diff: 3 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Quantitative Skill Type: Applied 21) If John executes a buy order to take place when the stock price of ABC Ltd. falls to $10, it is a(n) A) on-stop order. B) limit buy order. C) buy stop order. D) sell stop order. Answer: C Diff: 2 Type: MC Categories: Purchasing or Selling Stocks Financial Type: Qualitative Skill Type: Applied 7 Copyright © 2022 Pearson Canada Inc.

22) How many shares of TIC could you purchase on margin if you have $6000? The market price is $20 and the margin requirement is 50 percent. A) 900 shares B) 300 shares C) 600 shares D) 428 shares Answer: C Diff: 3 Type: MC Categories: Buying Stocks on Margin Financial Type: Qualitative Skill Type: Applied 23) A brokerage firm currently limits the margin rate to 50 percent. The amount that can be borrowed for a transaction to buy 100 shares at $50 is A) $4000. B) $2500. C) $5000. D) $1500. Answer: B Diff: 2 Type: MC Categories: Buying Stocks on Margin Financial Type: Quantitative Skill Type: Applied 24) You purchased stock worth $10 000 on margin (50 percent). Now the value of your stock has declined to $7000 and you receive a margin call. How much cash do you need to bring the margin back to the minimum level? A) $1500 B) $3000 C) $5000 D) $2000 Answer: A Diff: 3 Type: MC Categories: Buying Stocks on Margin Financial Type: Quantitative Skill Type: Applied

25) You have bought 1000 shares on margin at $50 per share, putting up $25 000. The stock price has increased to $65. If the margin rate is 50 percent, how much more will the broker lend you? A) $0 B) $15 000 C) $7500 D) $5000 Answer: C Diff: 3 Type: MC Categories: Buying Stocks on Margin Financial Type: Quantitative Skill Type: Applied 26) When placing an order to buy or sell a stock, you must specify all of the following except A) ticker symbol. B) margin requirement. C) number of shares being purchased. D) whether it is a market order or limit order. Answer: B Diff: 2 Type: MC Categories: Buying Stocks on Margin Financial Type: Qualitative Skill Type: Recall 27) At what price are stocks no longer eligible to be carried on margin? A) Under $1.50 B) Under $1.00 C) Under $2.00 D) Under $1.75 Answer: A Diff: 1 Type: MC Categories: Buying Stocks on Margin Financial Type: Qualitative Skill Type: Recall 28) Which of the following statements is true with respect to short selling a stock? A) You cannot short sell a stock that is trading at below $1.50. B) Short selling is advantageous when the stock price has reached a historical low. C) Short sellers attempt to buy high and sell low. D) Investors consider short selling when they consider a stock to be overvalued. Answer: D Diff: 2 Type: MC Categories: Buying Stocks on Margin Financial Type: Qualitative Skill Type: Recall

29) You decide to short sell 300 shares of a stock that is currently trading at $7. If the margin requirement is 150 percent, what is the initial amount of margin that you need to deposit into your margin account? A) $2,100 B) $3,150 C) $1,050 D) $700 Answer: C Diff: 2 Type: MC Categories: Buying Stocks on Margin Financial Type: Quantitative Skill Type: Applied 30) Discuss investing on margin, illustrating the positives and negatives of this investing technique. Illustrate with a specific example. Answer: Investing on margin increases risk and profit potential due to leverage. Any example which illustrates the positive and the negative would be sufficient. Consider purchasing 1,000 shares of stock B which is trading at $10. The maximum margin would be 50 percent. You would own $10 000 worth of B and have put up $5,000 and borrowed $5,000. The positive: If the stock went up, say doubled in price, then you would have of the stock and you would have only invested $5,000. Your return on the $5,000 (ignoring interest charges and trading costs) would be ($20 000 - $5,000)/$5,000 = 300% versus ($20,000 - $10,000)/$10,000 = 100% if you had purchased it directly. The negative: If the stock dropped to $5 per share you would own $5,000 worth of shares and owe $5,000, so your return would be ($5,000 - $10 000)/5,000 = -100% versus ($5,000 - $10 000)/$10 000 = - 50% if you had purchased the stock directly. Diff: 3 Type: ES Categories: Buying Stocks on Margin Financial Type: Quantitative Skill Type: Applied Analyzing Stocks 1) For most firms, having slightly more short-term assets versus short-term liabilities would be considered a reasonable current ratio. Answer: FALSE Diff: 2 Type: TF Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Applied

2) A firm with a low debt ratio relative to the industry norm has a high degree of financial leverage and therefore may have a relatively high risk of default. Answer: FALSE Diff: 3 Type: TF Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 3) A high times-interest-earned ratio means that the firm should be more capable of covering its debt payments. Answer: TRUE Diff: 2 Type: TF Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 4) When you look at inventory turnover (cost of goods sold divided by average daily inventory), a high ratio means that a company is more efficient than those with lower ratios. Answer: TRUE Diff: 2 Type: TF Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 5) When the federal government fiscal policy moves to increases taxes, these revenues would generally be used to stimulate economic growth. Answer: FALSE Diff: 2 Type: TF Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall 6) Low interest rates can increase demand for stocks and therefore have a direct impact on stock prices. Answer: TRUE Diff: 2 Type: TF Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Applied 7) Low interest rates tend to entice investors into the stock market where they can achieve better returns. Answer: TRUE Diff: 2 Type: TF Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall 11 Copyright © 2022 Pearson Canada Inc.

8) Inflation is the measure of the increase in the general level of prices of products and services over a specified period. Answer: TRUE Diff: 1 Type: TF Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall 9) Fiscal policy is about how the government manages interest rates and money supply. Answer: FALSE Diff: 2 Type: TF Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall 10) The firm's income statement measures its revenues, expenses, and earnings as of a particular point in time. Answer: FALSE Diff: 2 Type: TF Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 11) It is reasonable to calculate the quick ratio for a firm that is experiencing declining sales. Answer: TRUE Diff: 2 Type: TF Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 12) Generally, higher turnover ratios reflect higher efficiency. Answer: TRUE Diff: 1 Type: TF Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 13) Stocks perform better when interest rates are high. Answer: FALSE Diff: 1 Type: TF Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall

14) A company's earnings are $3 per share, its dividend is $2 per share, and its stock price is $30 per share. Its P/E is A) 15. B) 10. C) 6. D) 15 percent. Answer: B Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Quantitative Skill Type: Applied 15) A way to evaluate the performance of a stock investment is to compare it to A) the buy and sell recommendations from analysts. B) the returns of other stocks in your portfolio. C) the stock's relevant industry index. D) the historical return of the Canadian stock market. Answer: C Diff: 2 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 16) When reviewing a corporate income statement, to find gross profit, cost of goods sold is subtracted from A) revenue. B) net income. C) earnings before interest and taxes. D) operating expenses. Answer: A Diff: 2 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 17) To evaluate the liquidity of a firm, you should look at the A) current ratio. B) debt ratio. C) inventory turnover. D) return on net assets. Answer: A Diff: 2 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall

18) Which of the following ratios measures efficiency? A) Times interest earned B) Inventory turnover C) Return on assets D) Return on equity Answer: B Diff: 3 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 19) If you wish to evaluate the financial leverage of a firm, you could look at the A) short-term liabilities versus assets. B) long-term liabilities versus total assets. C) gross revenue versus total assets. D) long-term debt versus total equity. Answer: B Diff: 2 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 20) In deciding to invest in stocks, the most time-consuming part is A) fundamental analysis. B) choosing a broker. C) the actual purchase of the stock. D) monitoring results. Answer: A Diff: 1 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 21) Which technique for valuing stocks is used in technical analysis? A) Index comparisons B) Price charting C) DDM D) P/E ratio analysis Answer: B Diff: 2 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall

22) An example of fraud in financial reporting would be A) allowing orders to be cancelled. B) arriving at a P/E using the weighted average number of shares outstanding during the year. C) inflating revenues by recording income from contracts which will extend beyond one year. D) advising your auditors about a change in accounting procedures. Answer: C Diff: 3 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 23) Stocks would be most favourably affected by A) a decline in interest rates and a decline in inflation. B) an increase in interest rates and a decline in inflation. C) a decline in interest rates and an increase in inflation. D) an increase in interest rates and an increase in inflation. Answer: A Diff: 2 Type: MC Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall 24) Which of the following factors would contribute to an increase in stock prices? A) Low inflation B) High interest rates C) Fiscal policy to increase tax rates D) Inflationary monetary policy Answer: A Diff: 3 Type: MC Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Applied 25) The means by which the Canadian government imposes taxes on individuals and corporations and the way it spends tax revenues is referred to as A) tax policy. B) fiscal policy. C) monetary policy. D) budgetary policy. Answer: B Diff: 2 Type: MC Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall

26) One of the most commonly used measures of inflation is the A) gross domestic product. B) fiscal policy. C) consumer price index. D) inflation factor. Answer: C Diff: 1 Type: MC Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall 27) When the Bank of Canada uses interest rates to regulate the economy, it is using A) monetary policy. B) fiscal policy. C) economic growth policy. D) gross domestic product (GDP) policy. Answer: A Diff: 1 Type: MC Categories: Economic Analysis of Stocks Financial Type: Qualitative Skill Type: Recall 28) Which of the following equations accurately reflects the relationship for the information contained in a balance sheet? A) assets = liabilities + shareholder's equity B) assets + liabilities = shareholder's equity C) liabilities = shareholder's equity + assets D) assets = shareholder's equity - liabilities Answer: A Diff: 2 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall 29) A company has current assets of $149,000, which includes inventory of $15,000. It also has current liabilities of $47,000. Calculate the company's current ratio and quick ratio. A) Current ratio is 3.17; quick ratio is 3.49. B) Current ratio is 3.17; quick ratio is 2.85. C) Current ratio is 3.49; quick ratio is 2.85. D) Current ratio is 2.85; quick ratio is 3.17. Answer: B Diff: 3 Type: MC Categories: Analysis of a Firm Financial Type: Quantitative Skill Type: Applied

30) A company has sales of $11 000, gross profit of $7,000, operating expenses of $2,500, and interest expense of $400. What is the company's interest coverage ratio? A) 21.25 B) 17.5 C) 27.5 D) 11.25 Answer: D Diff: 3 Type: MC Categories: Analysis of a Firm Financial Type: Quantitative Skill Type: Applied 31) A company has sales of $11 000, gross profit of $7,000, operating expenses of $2,500, interest expense of $400, and taxes of $800. What is the company's net profit margin? A) 0.64 B) 0.47 C) 0.30 D) 0.15 Answer: C Diff: 3 Type: MC Categories: Analysis of a Firm Financial Type: Quantitative Skill Type: Applied 32) Which of the following balance sheet items can be used to measure profitability? A) Shareholder's equity B) Inventory C) Accounts receivable D) Accounts payable Answer: A Diff: 3 Type: MC Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall

33) Explain, with several examples, the concept of fundamental analysis and all of its potential components. Answer: Fundamental Analysis: Fundamental analysis is the valuation of stocks based on an examination of fundamental characteristics such as revenue or earnings. Examples include: 1. Review of annual reports/financial statements 2. Liquidity analysis - current ratio, quick ratio 3. Efficiency Ratios - accounts receivable turnover, inventory turnover, total asset turnover 4. Financial leverage analysis - debt-equity ratio, times interest earned or interest coverage ratio 4. Profitability analysis - net profit margin, return on assets, return on equity 5. Economic analysis - economic growth, fiscal policy, interest rate trends, monetary policy, inflation analysis 6. Industry analysis 7. Dividend discount model 8. P/E ratio analysis Diff: 3 Type: ES Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Applied 34) Describe how a firm's performance impacts its stock price. Answer: When a firm's sales and profits are strong, there are few investors willing to sell the stock of the firm because they may also believe the stock will perform well. As a result, the demand for the stock is much larger than the supply of stock for sale by investors and the stock price rises. When a firm's sales and profits are weak, the opposite effects occur. Investors become concerned that the firm will perform poorly and they are not willing to invest in the firm's stock. When there are few investors who want to buy a stock and there are many investors who want to sell a stock, the price at which sellers can sell the stock falls. Diff: 2 Type: ES Categories: Analysis of a Firm Financial Type: Qualitative Skill Type: Recall Stock Valuation 1) As long as you purchase the stock of a good company, it will be a good investment. Answer: FALSE Diff: 3 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Applied

2) Fundamental analysis is the valuation of stocks based on sensitivity of the firm's performance to economic conditions. Answer: TRUE Diff: 1 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 3) The price-earnings method used to value stock is limited because it assumes that the firm has the same P/E ratio as its competitors. Answer: FALSE Diff: 2 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 4) A stock with a low P/E ratio compared with its peers means it is a good value using fundamental analysis. Answer: FALSE Diff: 2 Type: TF Categories: Stock Valuation Financial Type: Quantitative Skill Type: Applied 5) If the stock market is efficient, then fundamental analysis will be a good way to determine when stocks are well priced. Answer: FALSE Diff: 2 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Applied 6) Venture capital refers to funds that investors are prepared to invest in risky new businesses with growth potential. Answer: TRUE Diff: 1 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 7) A firm's financial leverage indicates its reliance on debt to support its operations. Answer: TRUE Diff: 2 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 19 Copyright © 2022 Pearson Canada Inc.

8) The dividend discount model is a reliable method of valuing stocks because companies pay a stable dividend throughout their business life cycle. Answer: FALSE Diff: 2 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 9) An efficient stock market is one in which stock prices fully reflect all information that is available to investors. Answer: TRUE Diff: 1 Type: TF Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 10) In fundamental research you look for a stock that is A) overvalued. B) from a well-known company. C) undervalued. D) trending upwards. Answer: C Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 11) Technical analysts look for stock price patterns which A) indicate stocks with rapidly changing P/Es. B) indicate a possible price trend. C) indicate value trends. D) demonstrate profit trends. Answer: B Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall

12) Which of the following methods is used most commonly to value stock? A) Price-earnings method B) Price-revenue method C) General evaluation of the economy and industry D) Technical analysis Answer: A Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 13) How much should a share of stock be worth for a firm whose earnings per share are $4 if the industry's average P/E is 11? A) $40 B) $44 C) $48 D) $88 Answer: B Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Quantitative Skill Type: Applied 14) If a company's P/E is 20 and its industry's mean P/E is 15, the company is likely considered to be A) overvalued. B) poorly managed. C) undervalued. D) risky. Answer: A Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 15) Which of the following is a limitation of the P/E method? A) Finding the price of the stock B) Finding earnings per share information C) Difficulty forecasting earnings D) Changing dividend payouts Answer: C Diff: 1 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall

16) One of the key ways to apply fundamental analysis is by A) following an investor newsletter. B) tracking historical stock price trends. C) charting stock price patterns. D) using the dividend discount model. Answer: D Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 17) The dividend discount model method is used to value a stock based on a firm's ________ and is ________ at an appropriate rate of interest. A) future dividend payments; compounded B) future earnings; discounted C) future earnings; compounded D) future dividend payments; discounted Answer: D Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 18) Which of the following techniques is regarded as fundamental analysis? A) Study of the firm's revenue and earnings B) Study of the firm's stock price history C) Study of the firm's recent change in management D) Study of the firm's commentary by the financial news Answer: A Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 19) Which of the following was put in place to restore investor confidence in the markets and to prevent further occurrences of corporate fraud? A) Ontario Securities Commission (OSC) B) Securities and Exchange Commission (SEC) C) Investment Industry Regulatory Organization of Canada (IIROC) D) Sarbanes-Oxley Act Answer: D Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall

20) Which of the following is not a typical way to analyze firm-specific characteristics through financial statements? A) Profitability B) Efficiency C) Liquidity D) Competitive strategy Answer: D Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 21) A market in which stock prices fully reflect all information that is available to investors is called A) inefficient. B) efficient. C) overvalued. D) factored. Answer: B Diff: 2 Type: MC Categories: Stock Market Efficiency Financial Type: Qualitative Skill Type: Recall 22) If stock markets are truly efficient, it implies that A) it will not be easy to find undervalued stocks. B) technical analysis should be more effective than fundamental analysis. C) professional money managers should outperform individual investors. D) stock purchase and sell orders can always be completed within a number of seconds. Answer: A Diff: 3 Type: MC Categories: Stock Market Efficiency Financial Type: Qualitative Skill Type: Applied 23) If stock markets are inefficient, A) fundamental value analysis will not be effective. B) it will be easier for investors to find stocks that are undervalued. C) stock prices fully reflect information that is available to investors. D) stock selections by investors will not consistently beat the market. Answer: B Diff: 3 Type: MC Categories: Stock Market Efficiency Financial Type: Qualitative Skill Type: Recall

24) What is the difference between intrinsic and relative stock valuation models? A) An intrinsic valuation will calculate the future value of expected future cash flows to determine stock value whereas a relative valuation model will use ratios, such as the P/E ratio. B) A relative valuation model will use discounted expected future cash flows to determine stock value whereas an intrinsic valuation model will use ratios, such as the P./E ratio. C) An intrinsic valuation model focuses on the amount of future cash flows generated by an investment whereas a relative valuation model determines the value of an investment by comparing it to other similar investments. D) Both intrinsic and relative valuation models rely on stock screening tools to determine stock value. Answer: C Diff: 3 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 25) Which of the following is not a common version of the dividend discount model? A) Variable-growth model B) Constant-growth model C) Zero-growth model D) Increasing growth model Answer: D Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall 26) Which of the following is not a limitation of the dividend discount model method? A) Mature companies cannot be valued using the dividend discount model. B) Dividend payments may not be stable over time. C) Some firms do not pay dividends. D) The growth rate of future dividend payments is unpredictable. Answer: A Diff: 2 Type: MC Categories: Stock Valuation Financial Type: Qualitative Skill Type: Recall

27) What is the fair market value of a preferred share that pays $2.25 in dividends per year when long-term government bond yield is 5.42 percent annually? Answer: This is essentially the present value of a perpetual annuity. Using the formula, the solution would be: $2.25 divided by 0.0542 = $41.51. With the calculator, the solution would be: N = 999 (you cannot enter infinity so you need to fool the calculator). Keystrokes are: P/Y = 1, C/Y = 1; N = 999; I/Y = 5.42; PMT = $2.25; FV = 0; CPT PV = $41.51 Diff: 3 Type: ES Categories: Stock Valuation Financial Type: Quantitative Skill Type: Applied Assessing Performance of Stock Investments 1) The best assessment of the performance of your selection of stocks is to compare the returns to A) the average gains or losses you had in the last five years. B) the average returns of GICs. C) a comparable stock index during the same period. D) the prime rate set by the Bank of Canada. Answer: C Diff: 2 Type: MC Categories: Assessing Performance of Stock Investments Financial Type: Qualitative Skill Type: Applied 2) 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 A) -4 percent. B) 2 percent. C) -2 percent. D) 4 percent. Answer: A Diff: 2 Type: MC Categories: Assessing Performance of Stock Investments Financial Type: Quantitative Skill Type: Applied

3) To assess the performance of your purchase of TD Bank stock, which index would be the most relevant? A) TSX 60 Index B) TSX Capped Financials Index C) TSX Global Financials Index D) TSX Unweighted Answer: B Diff: 3 Type: MC Categories: Assessing Performance of Stock Investments Financial Type: Quantitative Skill Type: Applied 4) TD Bank pays an annual dividend of $2.12 at the rate of $0.53 quarterly. The stock is trading at $63.21. What is the effective annual yield? A) 3.35 percent B) 3.25 percent C) 3.60 percent D) 0.84 percent Answer: A Diff: 3 Type: MC Categories: Assessing Performance of Stock Investments Financial Type: Quantitative Skill Type: Applied 5) The TSX Index had a return of 12 percent and Apple Inc. had a return of two percent over the same six month period. What can you say about whether your purchase of Apple Inc. was a good decision? A) Nothing because the TSX Index is not a relevant comparison for an American company. B) Your analysis of Apple was poor. C) Apple is always a good company to buy, but this was too short a time to compare. D) Comparing returns with an Index is irrelevant. Answer: A Diff: 2 Type: MC Categories: Assessing Performance of Stock Investments Financial Type: Quantitative Skill Type: Applied

6) What is the appropriate time for someone to invest in the stock market and when should the investment be moved to safer vehicles? Do you believe you have enough knowledge to invest in the stock market? Why or why not? How would you assess your success? Answer: These chapters are fairly comprehensive and provide a basic investing foundation to become an investor. However, investment courses are available. There are a number of objective considerations that should be addressed: Time frame. When investing for longer than a ten year time horizon, short-term market fluctuations will have less impact on returns. Selecting a sufficient number of holdings to diversify unsystematic risk. One can invest in the stock market through managed securities such as mutual funds or exchange traded funds to avoid the risk in picking individual stocks. This is a personal decision and either answer will suffice. Assessing success: Historical returns, your performance as compared to a relevant stock index, is return better than those you could have achieved with safer investments, are you gaining in net worth compared to inflation, did you have sufficient diversification, etc. Diff: 3 Type: ES Categories: Assessing Performance of Stock Investments Financial Type: Qualitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 12 - Investing in Bonds Background on Bonds 1) The bond par value or face value is the amount the investor will be paid when the bond matures. Answer: TRUE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 2) Generally, bonds have maturities between 1 and 30 years and pay interest annually. Answer: FALSE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 3) A bond with a call feature would pay a slightly higher interest rate than the same bond without this feature. Answer: TRUE Diff: 2 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 4) Bonds are issued with a call feature when the issuers expect interest rates to rise. Answer: FALSE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 5) A convertible bond allows the investor to exchange that bond for another issue of bonds within the convertible period. Answer: FALSE Diff: 2 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall

6) A bond's yield to maturity is the annualized percentage return of both interest and capital gains or losses if the bond were held until it matured. Answer: TRUE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 7) A retractable bond pays a lower interest rate, all else equal. Answer: TRUE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 8) When the economic conditions are weak, bonds with higher default risk become more susceptible. Answer: TRUE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 9) A debenture and a bond issued by the same company are the same. Answer: FALSE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 10) When considering the risk from investing in a 25-year government of Canada bond yielding 4 percent, the most significant risk is interest rate risk. Answer: TRUE Diff: 3 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Applied 11) The yield to maturity on a $10 000 face value bond with semi-annual coupon of 3 percent, maturing in three years and price of $9180, is 6 percent. Answer: FALSE Diff: 3 Type: TF Categories: Background on Bonds Financial Type: Quantitative Skill Type: Applied

12) A put feature on a bond is attractive to investors who believe interest rates will drop before the bond matures. Answer: FALSE Diff: 2 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Applied 13) A bond's market price is generally expressed as a percentage of its par value. Answer: TRUE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 14) A bond that is trading at a price below its par value is said to be a discount bond. Answer: TRUE Diff: 1 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 15) The yield to call (YTC) may be a more appropriate measure of return for a noncallable bond. Answer: FALSE Diff: 2 Type: TF Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 16) The amount returned to the investor when a bond matures is called A) principal. B) interest gain. C) capital gain. D) terminal value. Answer: A Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall

17) Which of the following is wrong? A) The par value of a bond is its face value. B) The par value of a bond is its market value in the secondary market. C) The par value of a bond will be paid to the bondholder at maturity. D) The par value multiplied by the coupon rate equals the interest paid to investors annually. Answer: B Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 18) Bonds usually pay interest A) annually. B) semi-annually. C) quarterly. D) monthly. Answer: B Diff: 1 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 19) Investors purchase bonds because A) they are a risk-free investment. B) they pay interest income. C) they pay dividends. D) the returns are higher than with stocks. Answer: B Diff: 1 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 20) Which of the following bonds would be most attractive to an investor who is very concerned about risk? A) A real return bond maturing in five years B) A government of Canada bond maturing in fifteen years C) A government of Canada strip bond maturing in ten years D) An AAA rated corporate bond maturing in five years Answer: A Diff: 3 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Applied

21) The benefit of the extendible feature of a bond is that A) it allows the issuer to extend the callable period when interest rates rise. B) it allows the investor to continue receiving a higher interest rate for a longer period. C) it allows the issuer the option to extend the bond during lower interest rate periods. D) it allows the investor the option of extending the period before the bond will become callable. Answer: A Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 22) If an investor is expecting a period of higher interest rates soon, which bond feature would she prefer? A) Callable B) Retractable C) Convertible D) Extendible Answer: B Diff: 3 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Applied 23) If an issuer wanted to protect against a drop in interest rates, the issuer of a bond would probably include which feature? A) Callable B) A put C) Extendible D) Convertible Answer: A Diff: 3 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 24) Convertible bonds are suitable for investors who A) want to maximize interest returns in periods when interest rates are low. B) want to convert the bond into a longer term at the same rate of interest. C) want the possibility of benefiting from a rise in the issuer's share price. D) have a lower risk tolerance and are seeking income. Answer: C Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall

25) A corporate bond trading at below par will have A) a higher yield to maturity than the coupon rate. B) a lower yield to maturity than the coupon rate. C) lower risk than one trading at par. D) higher risk than one trading at par. Answer: A Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 26) Investing in bonds gives you the possibility of A) capital gains and interest income. B) guaranteed income with no capital risk. C) capital gains and dividend income. D) deferring taxes on accrued interest. Answer: A Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 27) Investors are willing to purchase bonds with a call feature only if the bonds offer a A) slightly lower return than similar bonds without a call feature. B) slightly higher number of shares of the issuer's stock. C) slightly higher interest rate than similar bonds without a call feature. D) sinking fund provision. Answer: C Diff: 3 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 28) Which of the following features of a bond could result in the company never paying out cash to redeem the bonds? A) Extendibility B) Callability C) Convertibility D) Defaultation Answer: C Diff: 3 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall

29) If a company anticipates a substantive decline in interest rates during the term of the bond, which feature is likely to be included in its bond offering? A) Extendible B) Callable C) Convertible D) Retractable Answer: B Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 30) Bonds that may be exchanged for common stock at the option of the bondholders are called A) option bonds. B) convertible bonds. C) callable bonds. D) stock bonds. Answer: B Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 31) One difference between a regular bond and a convertible bond is that a regular bond has A) a higher interest rate. B) a lower interest rate. C) a shorter maturity. D) a longer maturity. Answer: B Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 32) If a company's stock price is expected to increase substantially over the next few years, which of the following may entice potential bondholders to accept a lower coupon rate? A) Extendibility B) Call feature C) Convertibility D) A put feature Answer: C Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall

33) The contractual rate of interest on a bond is always stated as a(n) A) daily rate. B) monthly rate. C) semi-annual rate. D) annual rate. Answer: D Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 34) What is a disadvantage of issuing bonds compared to shares? A) The dividends must be paid indefinitely. B) Bond interest expense is not tax deductible. C) Interest must be paid on a periodic basis regardless of earnings. D) Bondholders may require early repayment. Answer: C Diff: 1 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 35) Given the following ATT Ltd. bond information: $1000 par value, maturity Dec 22, 2023, semi-annual coupon 7.75 percent, price 105.50 and yield 7.4 percent. How much would a $1000 par value ATT Ltd. bond cost as of the day of this listing? A) $105.50 B) $740 C) $1000 D) $1055 Answer: D Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Quantitative Skill Type: Applied 36) A pool of money that is set aside by a corporation or government to repurchase a set amount of bonds in a set period of time is called a A) sinking fund. B) redemption fund. C) guaranteed fund. D) liquidity fund. Answer: A Diff: 1 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 8 Copyright © 2022 Pearson Canada Inc.

37) The market price of a $25 000 par value bond that is quoted at 93.22 is closest to A) $23,305. B) $24,293. C) $932.20. D) $93 320. Answer: A Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Quantitative Skill Type: Applied 38) What is the coupon payment on a $25 000, 3% bond that pays semi-annually coupons? A) $750 B) $300 C) $375 D) $125 Answer: C Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Quantitative Skill Type: Applied 39) Which of the following bond characteristics will result in a higher return, everything else being equal? A) A put feature B) A call feature C) Extendibility D) Convertibility Answer: B Diff: 1 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 40) What is the current percent yield of a $1,000 2% bond that is priced at $888? A) 3.25 percent B) 2.50 percent C) 2 percent D) 2.25 percent Answer: D Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Quantitative Skill Type: Applied

41) The yield to maturity of a bond is equal to its coupon rate when the bond is trading A) within 1 percent of its par value. B) above its par value. C) below its par value. D) at its par value. Answer: D Diff: 1 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 42) The normal yield curve is A) flat. B) upward sloping. C) downward sloping. D) inverted. Answer: B Diff: 1 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 43) The market segmentation theory suggests that A) the shape of the yield curve is a reflection of the market's expectation for future interest rate movements. B) investors require a premium for investing in longer-term bonds. C) the supply and demand for bonds varies along different parts of the yield curve. D) the yield curve has four distinct segments. Answer: C Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Recall 44) Which of the following lists ranks bond types from the lowest default risk to the highest default risk. A) Federal Crown corporation, provincial, municipal, corporate B) Federal Crown corporation, municipal, provincial, corporate C) Federal Crown corporation, provincial, corporate, municipal D) Federal Crown corporation, corporate, provincial, municipal Answer: A Diff: 2 Type: MC Categories: Background on Bonds Financial Type: Qualitative Skill Type: Applied

45) Enbridge Pipeline offers a $25 000, 6.55% bond that matures on November 17, 2027. The bond is currently priced at 127.06, pays semi-annual coupons, and is priced to yield 3.64%. Which of the following statements is true about this bond? A) The semi-annual coupon payment for the bond is $1,637.50. B) The market price of the bond is $31 765. C) The bond is priced at a discount. D) The bond may mature at its par value. Answer: B Diff: 3 Type: MC Categories: Background on Bonds Financial Type: Quantitative Skill Type: Applied Types of Bonds 1) Bonds are only issued by government entities, like federal crown corporations and municipalities. Answer: FALSE Diff: 1 Type: TF Categories: Types of Bonds Financial Type: Qualitative Skill Type: Recall 2) High-yield bonds offer a high rate of return, but are more risky because they are issued by less stable corporations. Answer: TRUE Diff: 1 Type: TF Categories: Types of Bonds Financial Type: Qualitative Skill Type: Recall 3) Which of the following is not a type of bond issued in Canada? A) Treasury bonds B) Marketable bonds C) Provincial bonds D) Corporate bonds Answer: A Diff: 1 Type: MC Categories: Types of Bonds Financial Type: Qualitative Skill Type: Applied

Other Fixed-Income Products 1) Bond interest is exempt from income tax (in the current year) if it is held in an RRSP, a TFSA or an RESP. Answer: TRUE Diff: 1 Type: TF Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Recall 2) T-Bills and BAs are both very secure short-term debt securities which pay the same interest rate. Answer: FALSE Diff: 3 Type: TF Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Applied 3) T-Bills are secure short-term debt securities that can be purchased on the secondary market. Answer: FALSE Diff: 2 Type: TF Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Recall 4) A Government of Canada strip bond maturing in 22 years has lower interest rate risk than a real return bond maturing in 10 years. Answer: FALSE Diff: 2 Type: TF Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Applied 5) Real return bonds have their par value and coupon payments adjusted by the consumer price index. Answer: TRUE Diff: 2 Type: TF Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Recall

6) The annual interest payment on $1,000, 7% real return bond will increase to $71.40 if inflation rises by 2 percent. Answer: TRUE Diff: 3 Type: TF Categories: Other Fixed Income Products Financial Type: Quantitative Skill Type: Applied 7) Michael decided to buy a strip bond for his RRSP. He purchased a three year $5000 face bond for $3777. What is the annualized return on this investment? A) 7.80 percent B) 9.80 percent C) 9.36 percent D) 8.15 percent Answer: B Diff: 3 Type: MC Categories: Other Fixed Income Products Financial Type: Quantitative Skill Type: Applied 8) Mortgage-backed securities are A) issued by the Government of Canada for individual mortgages on residential homes. B) backed by a pool of mortgages guaranteed by CMHC. C) a pool of mortgages issued and guaranteed by banks. D) a pool of CMHC mortgages not available on the secondary market. Answer: B Diff: 2 Type: MC Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Recall 9) What is the difference between banker's acceptances and commercial paper. A) Banker's acceptances are issued by a bank, whereas commercial paper is issued by a firm. B) Banker's acceptances are short-term debt securities, whereas commercial paper is a long-term debt security. C) Banker's acceptances are guaranteed by a bank, whereas commercial paper is guaranteed by the issuing firm. D) Banker's acceptances are sold at a discount, whereas commercial paper is sold at a premium. Answer: C Diff: 2 Type: MC Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Recall

10) Allan purchased a five-year strip bond from the Government of Canada with a $100 000 face value. The equivalent yield is 5.91 percent. How much interest will the bond earn over the five-year term? Answer: Keystrokes are: P/Y =1; C/Y = 1; N = 5; I/Y = 5.91; PMT= 0; FV = $100 000; CPT PV = $75 043.86. $100 000 - 75 043.86 = $24 956.14 Diff: 3 Type: ES Categories: Other Fixed Income Products Financial Type: Quantitative Skill Type: Applied 11) Rejean purchased a 20-year 6 percent real return bond for $15 000 and the CPI has increased by 1.5 percent in the first year. What interest payment will Rejean receive in the second year? Answer: The return from a real return bond is indexed for inflation by adjusting the face value of the bond to reflect a corresponding change in the CPI. So, both the interest payments and the face amount are indexed to inflation. At the end of the first bond year, the new face amount on Rejean's bond is $15 225, calculated as (1 + 1.5 percent) × $15 000. Therefore, the annual interest payment on the bond during the second bond year is $913.50, calculated as $15 225 × 6 percent. Diff: 3 Type: ES Categories: Other Fixed Income Products Financial Type: Quantitative Skill Type: Applied 12) The inclusion of real return bonds in the federal government's financing requirements has made them very attractive. Discuss all of the features of a real return bond. What risk is attached to a 25 year real return bond yielding 4 percent? Answer: The main feature of a real return bond is that it removes inflation risk from the equation, as long as the bond is held to maturity. However, the coupon does not change based on interest rates going higher, so real return bonds can still trade at a discount or premium. Diff: 2 Type: ES Categories: Other Fixed Income Products Financial Type: Qualitative Skill Type: Applied Return from Investing in Bonds 1) If you paid $9600 for a bond with par value of $10 000 and a 5 percent coupon rate, the semi-annual payment would be $250. Answer: TRUE Diff: 2 Type: TF Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied

2) If you purchased a $10 000, 6% bond that pays coupons semi-annually, then sold it for $10 600 a half year later, you would have to pay tax on the capital gain as well as tax on the coupon payment of $300. Answer: TRUE Diff: 2 Type: TF Categories: Return From Investing in Bonds Financial Type: Qualitative Skill Type: Applied 3) If you purchased a bond on August 1, 2020 on the secondary market with face value and received $200 interest on January 1, 2021, you would owe tax on the interest earned on your 2020 tax return. Answer: TRUE Diff: 3 Type: TF Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied 4) A bond with a coupon rate of 6.5 percent and trading at $920 will pay annual interest of $59.80. Answer: FALSE Diff: 2 Type: TF Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied 5) If you expect that interest rates will decline, it would make sense to switch from a par value bond with a 4 percent semi-annual coupon maturing in twelve years to a bond with the same features, except maturing in 3 years. Answer: FALSE Diff: 3 Type: TF Categories: Return From Investing in Bonds Financial Type: Qualitative Skill Type: Applied 6) The total return on a 5 year bond with par value and an annual coupon rate of 6 percent will be most favourable if interest rates A) increase to 8 percent. B) decrease to 4 percent. C) increase to 7 percent. D) decrease to 5 percent. Answer: B Diff: 2 Type: MC Categories: Return From Investing in Bonds Financial Type: Qualitative Skill Type: Applied 15 Copyright © 2022 Pearson Canada Inc.

7) The normal yield curve suggests A) that reinvestment risk is higher for higher coupon rates. B) that selecting short-term maturities for borrowing and long term for investing will be profitable. C) that interest rate risk is lowest for longer-term bonds. D) that short-term bonds give the best risk return trade-off. Answer: B Diff: 3 Type: MC Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied 8) Given the following ZOO Ltd. bond information: par value, maturity Dec 22, 2023, semi-annual coupon 6.75 percent, price 105.50 and yield 7.4 percent. How much interest does it pay annually? A) $71.21 B) $67.50 C) $78.07 D) $74.00 Answer: B Diff: 2 Type: MC Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied 9) Given the following bond information: Issuer Alberta

coupon 6.300

maturity 2024-Jun-02

price 99.00

yield 3.28

What would be the taxable income on this bond if it were purchased at this price on June 1st and sold December 1st for a price of 107.00 and has face value of $20 000 and a semi-annual coupon payment? A) Taxable capital gain of $800 and interest of $630 B) Taxable capital gain of $400 and interest of $315 C) Taxable capital gain of $1600 and interest of $656 D) Taxable capital gain of $200 and interest of $157.50 Answer: A Diff: 3 Type: MC Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied

10) Given the following bond information: Issuer Telus

coupon 7.350

maturity 2024-Dec-22

price 107.00

yield 6.56

What would be the taxable income on this bond if it were purchased at this price on December 20th and sold a year later for a price of 99.00? Assume face value of $10 000 and a semi-annual coupon payment. A) Taxable capital gain of $400 and interest of $735 B) Taxable capital loss of $400 and interest of $735 C) Taxable capital loss of $200 and interest of $735 D) Taxable capital gain of $200 and interest of $656 Answer: B Diff: 3 Type: MC Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied 11) If you buy a corporate bond for $9700 and sell it six months later for A) interest income of $800. B) a capital gain of $800. C) a taxable capital gain of $800. D) non-taxable income of $800. Answer: B Diff: 2 Type: MC Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied

, you will have

12) Leonardo purchased a bond today with an 8 percent semi-annual coupon and with a face value of $15 000. A semi-annual coupon is due in exactly one month and the bond was priced at 94.8. What was the total price for the bond? Answer: First, the seller is owed five months' accrued interest. So $15 000 × 0.08 = $1200 divided by 2 = $600. The seller is entitled to five months' interest: $600 × 5 divided by 6 = $500. Now the price: $15 000 × 0.948 = $14 220 + $500 = $14 270. Note: Leonardo will be able to keep the entire coupon payment in one month's time. Diff: 3 Type: ES Categories: Return From Investing in Bonds Financial Type: Quantitative Skill Type: Applied Valuing a Bond 1) You should be willing to pay $11 064 for a $10 000 face value bond with semi-annual 5 percent coupon which matures in 14 years, if similar bonds are now yielding 4 percent, compounded semi-annually. Answer: TRUE Diff: 3 Type: TF Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied 2) A 15-year strip bond with face value of $25 000 and yielding 3.2 percent should cost $13,586.35. Answer: FALSE Diff: 3 Type: TF Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied

3) If you held a bond with face value of $10 000 maturity in 12 years, semi-annual coupon of 5 percent, and the coupons on par value bonds with the same maturity today are 3 percent, compounded semi-annually, how much would your bond be worth now on the secondary market? A) $10 000 B) $13 005 C) $12 003 D) $14 908 Answer: C Diff: 3 Type: MC Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied 4) What is the yield to maturity on the following bond: $10 000 par value, semi-annual coupon of 5 percent, maturing in six years and currently trading for $10 420? A) 3.54 B) 4.20 C) 5.00 D) 4.64 Answer: B Diff: 3 Type: MC Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied 5) On the secondary bond market A) only new bonds can be sold. B) bonds are guaranteed to bring at least par value. C) bond prices vary with interest rate movement. D) bond prices remain constant but yields vary with interest rate movement. Answer: C Diff: 2 Type: MC Categories: Valuing a Bond Financial Type: Qualitative Skill Type: Recall 6) Which of the following bond quotes might indicate a bond has a high default risk? A) GM 6 percent due 11/24 with a current yield of 7.5 percent B) Cott Beverages 6.5 percent due 09/24 with a current yield of 7.75 percent C) Eaglecrest Explorations 5.75 percent due 06/24 with a current yield of 7.60 percent D) Abitibi Price 7.0 percent due 09/24 with a current yield of 9.85 percent Answer: D Diff: 3 Type: MC Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied 19 Copyright © 2022 Pearson Canada Inc.

7) A Government of Canada bond has a 5 percent coupon which pays semi-annually and matures in 11 years. If interest rates have declined to 4.4 percent for similar bonds, what should be the price for this bond? (Assume $1000 par value) A) $1006.99 B) $1048.81 C) $1051.88 D) $1049.28 Answer: C Diff: 3 Type: MC Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied 8) Russ buys a $1000 10 percent semi-annual coupon bond for a price of $1064 and holds it to maturity in six years. What is the bond's yield to maturity? A) 10 percent B) 8.0 percent C) 8.6 percent D) 9.0 percent Answer: C Diff: 3 Type: MC Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied 9) If the bond market expects a 10 percent yield, and ABC Ltd. pays coupon interest on its $1000 par value bond at eight percent semi-annually, the discount rate that investors should apply in the calculation of ABC Ltd. bond price should be A) 4 percent. B) 10 percent. C) 8 percent. D) 5 percent. Answer: B Diff: 2 Type: MC Categories: Valuing a Bond Financial Type: Quantitative Skill Type: Applied

Risk from Investing in Bonds 1) If a new issue corporate bond offers a coupon rate of 6.2 percent and Government of Canada bonds with the same term and features are paying a 3.8 percent coupon, then the risk premium for the corporate bond is 2.4 percent. Answer: TRUE Diff: 2 Type: TF Categories: Risk from Investing in Bonds Financial Type: Quantitative Skill Type: Applied 2) Callable bonds and mortgage backed securities both have prepayment risk. Answer: TRUE Diff: 3 Type: TF Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Recall 3) A bond with a credit rating of AA is riskier than a bond with a credit rating of A. Answer: FALSE Diff: 2 Type: TF Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Applied 4) Which of the following government of Canada bonds (with all other features the same) would have the most interest rate risk? A) A 3% coupon bond maturing in ten years B) A 6% coupon bond maturing in ten years C) A 3% coupon bond maturing in five years D) A 6% coupon bond maturing in five years Answer: A Diff: 3 Type: MC Categories: Risk from Investing in Bonds Financial Type: Quantitative Skill Type: Applied

5) Which of the following is the greatest risk in holding a Provincial bond with face value $10 000 which matures in five years, has a semi-annual 7% coupon, which you purchased for $12 050? A) The inflation risk because the real return may not beat inflation of two percent B) Reinvestment risk that the coupons may not be able to be reinvested at the same return C) Default risk if interest rates rise by two percent D) Interest rate risk because interest rates may increase by one percent Answer: D Diff: 3 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Applied 6) Which of the following should be the highest yield bonds? A) Standard and Poor's rated AAA bonds B) Moody's rated A bonds C) Standard and Poor's rated AA bonds D) Moody's rated Aa bonds Answer: B Diff: 2 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Recall 7) Given the following bond quotations: Issuer Ontario Bombardier

coupon 3.150 7.350

maturity 2022-Jun-02 2024-Dec-22

price 99.00 107.00

yield 3.28 6.56

Which of the following statements is true? A) The Bombardier bond appears to have a higher risk premium. B) The Ontario bond has a 6.3 percent annual coupon rate. C) The yields on these bonds illustrate the liquidity preference theory. D) The Ontario bond is a better price. Answer: A Diff: 3 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Applied

8) Investors who buy bonds that are callable A) have a higher chance of default risk. B) risk reinvesting at lower rates if called. C) have very little interest rate risk. D) pay a premium for the feature. Answer: B Diff: 2 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Recall 9) Bonds with a high degree of default risk are most susceptible to default when economic conditions are A) strong. B) weak. C) stable. D) expanding. Answer: B Diff: 1 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Recall 10) The risk that you will be forced to sell your bond back to the issuer prior to maturity is the A) call risk. B) default risk. C) interest rate risk. D) economic risk. Answer: A Diff: 1 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Recall 11) When there is an element of default risk on a bond, the interest rate will include A) additional premium. B) risk premium. C) default premium. D) nominal premium. Answer: B Diff: 1 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Recall

12) You expect interest rates to rise in the short term. Your best strategy would be to A) buy T-bills and keep rolling them over. B) buy long bonds and use interest income to purchase higher yields. C) buy short bonds only and keep rolling them over. D) buy T-bills in anticipation of locking in higher rates after the increase. Answer: D Diff: 2 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Applied 13) If interest rates are rising, which of the following bonds would you would want to hold? (Ignore default risk factors.) A) Government of Canada 3.5 percent due 04/33 B) CN Rail 3.75 percent due 06/24 C) Province of Ontario 4 percent due 09/31 D) Maple Leaf Foods 3.5 percent due 11/26 Answer: B Diff: 3 Type: MC Categories: Risk from Investing in Bonds Financial Type: Quantitative Skill Type: Applied 14) Other things being equal, in general, which of the following bonds is the lowest-risk bond? A) Aa B) AAA C) AA D) These are the same. Answer: B Diff: 2 Type: MC Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Applied

15) Name and explain six risks involved with investing in bonds and indicate the magnitude of these risks and ways to mitigate them. Answer: Default risk is the risk that the issuer will not repay the principal. Consider bond agency ratings. Keep up with the news. Interest rate risk is the risk of a decline in price in response to rising interest rates. This is a very real risk which will certainly happen over a lifetime of investing. It is not very significant if bonds are held to maturity, but can have a large impact on bond holding if interest rates rise and the bonds need to be liquidated for something. Call risk is the risk that the bond will be called before maturity. Liquidity risk is the risk that a bond will be difficult to sell quickly without cutting the price if the investor wants to sell it. Inflation risk is th e risk that the purchasing power of a bond investment will diminish due to a relative increase in inflation. This is more significant when investing over the long-term in a passive strategy and could be mitigated by purchasing real return bonds. Reinvestment risk is the risk that the income earned from a bond cannot be reinvested at the same or a higher rate of interest as was being earned from the original bond. In a sense this is more a theoretical risk as often investors are not re-investing the coupon payments, but using that income for other purposes. Diff: 3 Type: ES Categories: Risk from Investing in Bonds Financial Type: Qualitative Skill Type: Applied Bond Investment Strategies 1) A passive strategy of bond investing consists of buying bonds for the long-term and not selling them until maturity. Answer: TRUE Diff: 2 Type: TF Categories: Bond Investment Strategies Financial Type: Qualitative Skill Type: Recall 2) The maturity matching strategy of investing in bonds is the surest way to have money available to meet a specific goal. Answer: TRUE Diff: 1 Type: TF Categories: Bond Investment Strategies Financial Type: Qualitative Skill Type: Recall

3) Investing in bonds based on interest rate expectations A) can be a reliable strategy to enhance bond yields. B) can be costly if predictions on interest rates are incorrect. C) increases bond values if you move to long-term bonds when interest rates rise. D) works well when the yield curve is inverted. Answer: B Diff: 3 Type: MC Categories: Bond Investment Strategies Financial Type: Qualitative Skill Type: Recall 4) Your son will be ready for college in 10 years and your daughter in 14 years. Which of the following bond strategies would be best suited to your goal of financing your children's education? A) Interest rate B) Passive C) Maturity matching D) Active Answer: C Diff: 2 Type: MC Categories: Bond Investment Strategies Financial Type: Qualitative Skill Type: Applied 5) When you invest in a diversified portfolio of bonds that are held for a long period of time this is referred to as a(n) A) income strategy. B) risk reduction strategy. C) passive strategy. D) interest rate strategy. Answer: C Diff: 1 Type: MC Categories: Bond Investment Strategies Financial Type: Qualitative Skill Type: Recall 6) List and describe three strategies to invest in bonds. Answer: Interest rate strategy is selecting bonds for investment based on interest rate expectations. Passive strategy is investing in a diversified portfolio of bonds that are held for a long period of time. Maturity matching is investing in bonds that will generate payments to match future expenses. Diff: 2 Type: ES Categories: Bond Investment Strategies Financial Type: Qualitative Skill Type: Recall

Personal Finance, Canadian Ed., 5e (Madura) Chapter 13 - Investing in Mutual Funds Background on Pooled Investment Funds 1) A pooled investment fund includes a variety of tools that invest money from multiple investors together, such as a mutual fund, an Exchange-Traded Fund, or a segregated fund. Answer: TRUE Diff: 1 Type: TF Categories: Background on Pooled Investment Funds Financial Type: Qualitative Skill Type: Recall Background on Mutual Funds 1) A mutual fund is a diversified portfolio of stocks and/or bonds, depending on the investment objective of the fund. Answer: TRUE Diff: 1 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 2) Three advantages of investing in mutual funds are diversification, marketability and economies of scale. Answer: TRUE Diff: 1 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 3) The net asset value (NAV) per share of a mutual fund is determined by the market value of securities owned minus liabilities divided by the number of mutual fund units outstanding. Answer: TRUE Diff: 1 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 4) Open-end mutual fund companies sell directly to investors and repurchase units whenever investors wish to sell them. Answer: TRUE Diff: 1 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 1 Copyright © 2022 Pearson Canada Inc.

5) Closed-end mutual fund shares trade on stock exchanges and can sell at a premium or discount to their NAVPS. Answer: TRUE Diff: 2 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 6) If you bought a back-end load mutual fund which had a six-year declining redemption schedule, and held the fund for seven years, you would pay only a minimal load fee. Answer: FALSE Diff: 2 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Applied 7) In most cases, the fees charged by load funds have no impact on the overall return of your investment. Answer: FALSE Diff: 2 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 8) Studies on mutual funds have found that the management expense ratio (MER) has no relationship to overall fund performance. Answer: FALSE Diff: 3 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 9) Trailing commissions, management expenses and marketing expenses are all part of the MER of a mutual fund. Answer: TRUE Diff: 2 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Applied 10) While not all mutual funds have loads or commissions, they all have management fees and expenses that are charged to the mutual fund shareholders. Answer: TRUE Diff: 1 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 2 Copyright © 2022 Pearson Canada Inc.

11) A pooled investment fund is ideally suited for individuals who have significant financial resources to build a diversified portfolio of assets. Answer: FALSE Diff: 2 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 12) Everything else being equal, the return on a no-load mutual fund is always greater than the return on a front-end load mutual fund. Answer: TRUE Diff: 1 Type: TF Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 13) Advantages of investing in mutual funds include all of the following except A) diversification of your investment. B) professional management. C) meeting specific investment goals. D) eliminating systematic risk. Answer: D Diff: 1 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 14) Which of the following is true about MERs? A) MERs only include manager and sales expenses. B) Mutual funds with lower MERs tend to outperform those with higher. C) All types of mutual funds have similar MERs. D) You need to subtract the MER from the posted return to figure out performance. Answer: B Diff: 3 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall

15) Mutual funds, which sell units directly to investors and repurchase units from investors who want to sell, are called A) open-market funds. B) open-end funds. C) closed-end funds. D) fair value funds. Answer: B Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 16) A family of mutual funds is A) where all of the funds have the same objective such as bond funds. B) a number of funds with different objectives operated by one investment company. C) where a number of competing investment companies pool their resources. D) quite rare in the mutual fund industry. Answer: B Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 17) Regarding load and no-load mutual funds, A) load funds have outperformed no-load funds on average. B) no-load funds have outperformed load funds on average. C) they tend to perform about the same when the commission is included. D) load funds require a broker, whereas no-load funds must be purchased directly. Answer: B Diff: 3 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 18) You own 500 units of a fund that now has a NAV of $12.30. What is your total investment worth? A) $6150 B) $61 500 C) $6150, minus the load fee D) $6150, plus the load fee Answer: A Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Quantitative Skill Type: Applied

19) If you had $12 000 to invest in mutual funds which had a 2 percent front end load fee and NAVPS of $15, how many units could you buy? A) 784 B) 800 C) 816 D) Unknown Answer: A Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Quantitative Skill Type: Applied 20) Three and a half years ago you purchased 1200 units of a fund with a NAV of $16.75. The NAV is now $34.50 and the fund had a 6 percent redemption fee declining at 1 percent per year and based on the value of the holdings at the time of the transaction. What will be the proceeds if you sell it today? A) $38 744 B) $41 400 C) $40 158 D) $40 797 Answer: C Diff: 3 Type: MC Categories: Background on Mutual Funds Financial Type: Quantitative Skill Type: Applied 21) If Rebecca's mutual fund has a sales charge schedule saying that if the fund is sold within the first year, the sales charge is 6 percent and if it is sold in the third year, the sales charge becomes 4.5 percent, Rebecca's mutual fund has a A) low load. B) discount-fee. C) broker commission. D) declining redemption schedule. Answer: D Diff: 1 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Applied

22) Which is the best reason for investing in funds? A) Management expense ratios B) Portfolio managers' performance C) Sector investment goals D) Diversification Answer: D Diff: 1 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 23) Which of the following statements is generally true when comparing mutual funds to exchange traded funds? A) Exchange traded funds are more tax efficient than mutual funds. B) Mutual funds are more efficient than exchange traded funds. C) Exchange traded funds and mutual funds are equally tax efficient. D) In order to know which is more tax efficient, we must first know what type of investments are held in the respective funds. Answer: A Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 24) If an investor was concerned about the tax efficiency of their mutual fund, which type of mutual funds should they buy? A) Open-end mutual funds B) Close-end mutual funds C) Front-end load mutual funds D) Back-end load mutual funds Answer: A Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 25) Which of the following mutual fund categories combines different asset types to create a portfolio? A) Equity mutual fund B) Bond mutual fund C) Balanced mutual fund D) Money market mutual fund Answer: C Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 6 Copyright © 2022 Pearson Canada Inc.

26) The management expense component of the management expense ratio includes which of the following? A) Marketing costs B) Administrative costs C) Dealer compensation D) Adviser compensation Answer: A Diff: 2 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 27) Which series of mutual funds are typically reserved for high net worth investors? A) Series A B) Series I C) Series D D) Series F Answer: B Diff: 1 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 28) Which series of mutual funds are generally available only to investors who have a discount brokerage account with the financial institution? A) Series A B) Series I C) Series D D) Series F Answer: C Diff: 1 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 29) Which series of mutual funds are generally available only to investors who have fee-based account with the financial institution? A) Series A B) Series I C) Series D D) Series F Answer: D Diff: 1 Type: MC Categories: Background on Mutual Funds Financial Type: Qualitative Skill Type: Recall 7 Copyright © 2022 Pearson Canada Inc.

30) A mutual fund has a beginning balance of $100 million, earns interest of $10 million, receives dividends of $15 million, and has expenses of $5 million. If 10 million shares are outstanding, what is the NAVPS? Answer: ($100 million + $10 million + $15 million - $5 million)/10 million shares = $12 Diff: 3 Type: ES Categories: Background on Mutual Funds Financial Type: Quantitative Skill Type: Applied

31) List and describe the advantages and disadvantages of mutual funds. Answer: Advantages Portfolio diversification: can be achieved by investing across asset types (cash/stocks/bonds), within asset classes (federal/provincial/municipal/corporate), industries, countries, maturities (short/medium/long) Lower transaction costs: individual securities that are purchased within a mutual fund on behalf of investors can be purchased at lower fees than what an individual investor could do for themselves Marketability:they can be sold back to the issuer of the fund or to another investor. Professional management:investment decisions that are made in an actively managed mutual fund reflect the decisions of experienced professionals who have access to the best research available Record keeping: the mutual fund company will send you a statement on a regular basis with details on the mutual funds you own Modest initial investment: many mutual funds in Canada require an initial deposit of only $500 Exchange privileges: investors can switch between funds of the mutual fund corporation without triggering any capital gains Reinvestment of dividends and capital gains: allows the investor to remain fully invested in the mutual fund without having to manually purchase additional shares of the fund Convenience: make an appointment with your bank representative to invest in mutual funds Disadvantages Management fees/load charges: fees vary substantially among fund and will have a significant impact on the long-term performance of your portfolio Lack of control over investments: you do not have an opportunity to select the investments in a mutual fund Poor investment selection: you could invest in a well-diversified mutual fund that is invested in a group of poorly performing investments Unexpected tax liability: if a portfolio manager decides to sell an investment within a mutual fund, the sale may result in a capital gain.which has to be passed on to investors; although you may not have received any capital gains since the money was reinvested Low liquidity: you may need to redeem your shares when the market conditions are not favourable. Diff: 3 Type: ES Categories: Background on Mutual Funds 9 Copyright © 2022 Pearson Canada Inc.

Financial Type: Qualitative Skill Type: Applied Types of Mutual Funds 1) MERs can be high due to high sales and marketing expenses or due to research costs such as for researching international companies. Answer: TRUE Diff: 2 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied 2) An equity mutual fund that pays higher-than-normal dividends is called a growth fund. Answer: FALSE Diff: 1 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 3) When comparing the MERs and performance of various mutual funds it is important to include only ones with similar objectives. Answer: TRUE Diff: 2 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 4) A mutual fund that buys only the stocks of the TSX is a good example of a sector fund. Answer: FALSE Diff: 2 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied 5) Index equity funds contain every company's stock that make up the particular index. Answer: FALSE Diff: 2 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall

6) Investors in mutual funds may receive capital gains without redeeming any shares. Answer: TRUE Diff: 2 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied 7) Global bond funds potentially offer higher yields than Canadian bond funds, but have higher MERs and more risk. Answer: TRUE Diff: 2 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 8) A conservative investor should only invest in a variety of bond mutual funds. Answer: FALSE Diff: 3 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied 9) The tracking error on an index mutual fund refers to how closely an index fund mirrors the movements of the index it represents. Answer: TRUE Diff: 1 Type: TF Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 10) Which of the following characteristics is true of closed-end funds? A) They are not regulated. B) They repurchase units from investors. C) They are bought and sold through a mutual fund dealer. D) They may sell above or below NAV. Answer: D Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall

11) Which of the following is an equity mutual fund? A) Asset allocation fund B) Balanced growth and income C) Mid-cap fund D) Money market fund Answer: C Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 12) Which of the following equity funds would probably have the lowest risk and return? A) TSX Index B) Capital appreciation C) Dividend D) Technology Sector Answer: C Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied 13) Investing in which of the following funds will typically give you the least diversification? A) Growth funds B) Large-Cap funds C) Equity income funds D) Sector funds Answer: D Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied 14) The return on an index fund may be less than the return on the index it represents because of A) tracking errors and costs. B) management fees. C) load fees. D) dividends and taxation. Answer: A Diff: 3 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall

15) Funds that attempt to mirror the movements of existing broad market indicators are called A) class funds. B) stock funds. C) index funds. D) ETFs. Answer: C Diff: 1 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 16) Index funds offer tax advantages because A) they trade frequently, generating frequent capital gains. B) they generate less capital gains through trades. C) they have higher MERs which reduces taxable distributions. D) they do not receive dividends or interest. Answer: B Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 17) The difference between an international fund and a global fund is that A) global funds invest in Canadian firms and those of other countries too. B) international funds invest in Canadian firms and those of other countries too. C) international funds invest in specified countries while global funds have no restrictions. D) There is no difference except in name. Answer: A Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 18) A mutual fund with investments in bonds, stock, and preferred shares would best be described as A) a balanced fund. B) a three sector fund. C) a diversified fund. D) a balanced growth and income fund. Answer: A Diff: 1 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall

19) A mutual fund that invests only in shares of gold mining companies would be called a A) growth fund. B) small-cap fund. C) Canadian equity fund. D) sector fund. Answer: D Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 20) What is an important difference between an index mutual fund and an exchange traded fund (ETF)? A) ETFs are better managed. B) ETFs trade like stocks. C) There are more types of ETFs. D) ETFs have higher MERs. Answer: B Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Quantitative Skill Type: Applied 21) If Raymond does not want to pay any fees to invest in mutual funds, he should pick A) no-load mutual funds. B) front-end load mutual funds. C) back-end load mutual funds. D) zero-fee mutual funds. Answer: A Diff: 1 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied 22) If Becky is going to retire soon, which of the following funds is most appropriate for her? A) Income funds B) Growth funds C) Hedge funds D) Small-cap funds Answer: A Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Applied

23) Which of the following bond mutual funds likely has highest risk? A) High-yield bond funds B) Canadian bond funds C) Canadian corporate bond index fund D) Canadian long-term bond index fund Answer: A Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 24) Which of the following applies to hedge funds? A) They are regulated similarly to mutual funds. B) They are appropriate for business owners who could benefit from creditor protection. C) They are not regulated by a securities commission. D) They use leverage and hedging to guarantee above average returns. Answer: C Diff: 3 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 25) In a target date fund, A) the allocation between stocks and bonds changes at the request of the investor. B) the target date represents the year in which the investor want to sell the fund units. C) the allocation for a young investor would be weighted toward stocks. D) as the investor aged and neared retirement, the allocation would shift toward money market securities to provide retirement income. Answer: C Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall 26) Which type of fund is also known as a fund of funds? A) A global fund B) A balanced growth and income fund C) An asset allocation fund D) A portfolio fund Answer: D Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall

27) Which type of fund should an investor purchase if the investor wants the asset allocation mix to change as market conditions change? A) A balanced growth and income fund B) An asset allocation fund C) An international fund D) A portfolio fund Answer: B Diff: 2 Type: MC Categories: Types of Mutual Funds Financial Type: Qualitative Skill Type: Recall Exchange-Traded Funds (ETFs) 1) Exchange-traded funds (ETFs) are similar to index mutual funds but have lower MERs and are traded like stocks, so have brokerage commission charges when buying and selling them. Answer: TRUE Diff: 2 Type: TF Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Recall 2) Because exchange-traded funds (ETFs) are passively managed, they are a good choice for an investor who is looking for tax efficiency. Answer: TRUE Diff: 3 Type: TF Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Applied 3) You can obtain information about an ETF by reading its fund facts. Answer: FALSE Diff: 1 Type: TF Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Recall

4) How are exchange-traded funds (ETFs) different from stocks that trade on an exchange? A) There is no minimum investment for an ETF. B) You can buy ETFs at any time throughout the day. C) When buying ETFs, you can use limit orders. D) The number of shares outstanding for an ETF changes as new shares are continuously created and redemptions of existing shares take place throughout the trading day. Answer: D Diff: 2 Type: MC Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Recall 5) ETFs that are designed to include stocks of a particular type of company are called A) sector ETFs. B) industry ETFs. C) style ETFs. D) actively managed ETFs. Answer: C Diff: 2 Type: MC Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Recall 6) ETFs that are designed to provide exposure to complicated investment strategies are called A) inverse ETFs. B) commodity ETFs. C) actively managed ETFs. D) alternative ETFs. Answer: D Diff: 2 Type: MC Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Recall 7) ETFs that are designed to track a particular stock index are called A) market ETFs. B) sector ETFs. C) foreign currency ETFs. D) commodity ETFs. Answer: A Diff: 2 Type: MC Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Recall

8) When compared to mutual funds, what are the advantages and disadvantages of exchange traded funds (ETFs)? Answer: Advantages Exchange-traded funds (ETFs) have lower expense ratios than mutual funds and there are no load charges; although you may have to pay a commission whenever you buy or sell an ETF. ETFs are more tax efficient than mutual funds because ETFs do not make capital gain distributions to their shareholders. Unlike mutual funds, you can buy or sell ETFs at any time throughout the day and you can use limit orders, stop-buy orders, and buy on margin. There is no minimum for investing in ETFs. Disadvantages Some ETFs are so thinly traded that they can be illiquid. If you buy small amounts of an ETF frequently, you will have to pay a broker's commission each time. With mutual funds, the investment company may allow you to invest additional small amounts frequently without charging you a fee each time. Diff: 3 Type: ES Categories: Exchange Traded Funds Financial Type: Qualitative Skill Type: Recall Return and Risk of a Mutual Fund 1) There are three ways that taxable income can be generated for investors in mutual funds without the investor actually receiving any income. Answer: TRUE Diff: 3 Type: TF Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 2) Through research you can find the best professional fund managers and eliminate market risk from your equity mutual funds. Answer: FALSE Diff: 3 Type: TF Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied

3) Hedge funds use risky strategies to successfully earn high returns for wealthy investors. Answer: FALSE Diff: 3 Type: TF Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 4) Most mutual funds are conservative investments. Answer: FALSE Diff: 2 Type: TF Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 5) The most important considerations in choosing a mutual fund is your investment objectives and comparing fees and expenses charged. Answer: TRUE Diff: 1 Type: TF Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 6) The taxable capital gain on 500 shares of an equity mutual fund that you purchase for $25 per share and sell at $40 per share is equal to $7,500. Answer: TRUE Diff: 2 Type: TF Categories: Return and Risk of a Mutual Fund Financial Type: Quantitative Skill Type: Applied 7) The difference between the performance of two equity mutual funds during a particular period may be attributed to the sector rather than to the skill of the funds' managers. Answer: TRUE Diff: 2 Type: TF Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall

8) Which of the following is true about mutual fund expenses? A) International equity funds often have higher MERs. B) The MERS of all kinds of funds are roughly the same. C) Management fees include all sales and administration expenses. D) The funds with higher MERs pay the sales people the most. Answer: A Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 9) You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund based on the TSX. The growth stocks fund had a five year average annual return of 11 percent with MER of 2.6 percent. The index fund had a five year average annual return of 11 percent with MER of 1.1 percent. Assuming equal risk, you should buy A) the index fund because it has a lower MER. B) the growth fund because its portfolio performed better. C) some of both, for diversification, as they performed equally. D) neither, because the expenses are too high for funds of this type. Answer: C Diff: 3 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Quantitative Skill Type: Applied 10) Global bond funds A) are issued by Canadian firms or governments. B) are always higher yielding than Canadian bond funds. C) are subject to interest and exchange rate risk. D) cannot include Canadian bonds. Answer: C Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 11) In non-registered accounts, investors in high marginal tax brackets will normally prefer mutual funds that generate A) dividends. B) long-term capital gains. C) long-term stock dividends. D) short-term capital gains. Answer: B Diff: 3 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 20 Copyright © 2022 Pearson Canada Inc.

12) Which of the following can be a source of taxation even if not paid out to owners of a Canadian bond mutual fund? A) Interest, dividends and capital gains B) Interest and capital gains C) Interest and dividends D) Interest income only Answer: B Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 13) The possibility that the Bank of Canada may raise the prime rate is an example of A) political risk. B) exchange rate risk. C) interest rate risk. D) monetary risk. Answer: C Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 14) Money market mutual funds are A) high risk and not very liquid. B) high risk and very liquid. C) low risk and not very liquid. D) low risk and very liquid. Answer: D Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 15) Which of the following bond mutual funds have both the highest default risk and interest rate risk? A) Long-term AAA corporate bonds B) Short-term BBB corporate bonds C) Short-term high-yield corporate bonds D) High-yield long-term corporate bonds Answer: D Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 21 Copyright © 2022 Pearson Canada Inc.

16) Which of the following applies to global bond funds in comparison to Canadian bond funds? A) They are a safe way to ensure higher yields. B) They have less interest rate risk, but more exchange rate risk. C) The currency rate risk is offset by the diversification benefits. D) They have potential for higher yields and have higher risk. Answer: D Diff: 3 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 17) You own 600 units of a fund with a current NAV of $14.36. Your portion of the fund distributions is $718.00 of dividends, capital gains, and interest earnings. What will be your total units now? A) 600 units B) 605 units C) 550 units D) 650 units Answer: D Diff: 3 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Quantitative Skill Type: Applied 18) Which of the following uses the most risky strategies? A) Sector funds B) Hedge funds C) Segregated funds D) Small-Cap funds Answer: B Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 19) If Betty has inherited significant wealth but has very limited investment knowledge, which of the following funds would be least appropriate for her? A) Segregated funds B) Dividend funds C) Hedge funds D) Balanced funds Answer: C Diff: 3 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 22 Copyright © 2022 Pearson Canada Inc.

20) Which of the following must be considered before assessing the skills of equity fund managers? A) The industry sectors held in the funds B) The interest yield curve C) The P/E ratios of key market sectors D) The average dividend payout ratios Answer: A Diff: 3 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied 21) The capital gain from redeeming mutual fund shares is more difficult to calculate when you have reinvested distributions into the fund because A) the adjusted cost base does not reflect the reinvested distributions. B) the number of shares outstanding will decrease. C) the NAVPS will increase. D) each distribution results in the purchase of more shares. Answer: D Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 22) Which of the following fund types is likely to offer the greatest potential return for a given level of risk? A) A growth fund B) An international equity fund C) A small-cap fund D) An index fund Answer: B Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 23) If you expect interest rates to increase, you should invest in A) bond funds that contain more long-term bonds. B) bond funds that contain more medium-term bonds. C) bond funds that contain more short-term bonds. D) money market funds. Answer: C Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 23 Copyright © 2022 Pearson Canada Inc.

24) Which of the following bond fund types would have a low level of interest rate risk and a high level of default risk? A) Short-term high-yield bond funds B) Government of Canada bond funds C) Long-term high-yield bond funds D) Corporate bond funds Answer: A Diff: 2 Type: MC Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Recall 25) List ten types of bond mutual funds in order of least risk to highest, considering multiple risk factors and indicate which ones are most crucial for each type. Answer: Various ones could be indicated, among the following T-bills or Money Market, practically speaking T-Bills have no risk. Short-term federal government bonds, low interest rate risk and reinvestment risk Short-term provincial bonds, very low default risk, low interest rate risk and reinvestment risk Short-term corporate, some default risk depending on the grades, low interest rate risk and reinvestment risk Intermediate federal, provincial and corporate bond funds: similar to short term, but with higher interest rate risk Long-term federal, provincial and corporate bond funds: similar to intermediate term, but with higher interest rate risk Global bond funds, same as for long-term corporate bonds, with currency risk added which is very significant, and potentially more default risk depending on the countries invested in. High-yield corporate bonds, significant default risk, as well the higher interest rate risk applied to long-term corporate bonds. Diff: 3 Type: ES Categories: Return and Risk of a Mutual Fund Financial Type: Qualitative Skill Type: Applied

26) What would be the return on a $1000 investment in a mutual fund whose NAV is $20? The fund has a 3 percent front-end load and, during the holding period, $400 of fund distributions are reinvested at a NAV of $25 (no load applied to reinvestment). The fund is ultimately sold at a NAV of $24. (Round to the nearest tenth of a percent.) Answer: Answer is: ($1000 - $30 load)/$20 = 48.5 shares (initial purchase) $400/$25 = 16 shares (reinvested distributions) 64.5 shares × $24 $1548 (proceeds from sale) (1548 - 1400)/1000 = 14.8 percent Diff: 3 Type: ES Categories: Return and Risk of a Mutual Fund Financial Type: Quantitative Skill Type: Applied Deciding among Mutual Funds 1) If you own seven mutual funds further diversification is not recommended. Answer: FALSE Diff: 2 Type: TF Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Applied 2) A fund with a favourable historical track record is likely to continue to outperform funds with similar objectives in the future. Answer: FALSE Diff: 2 Type: TF Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Applied 3) An investor has the right to cancel a mutual fund purchase within 48 hours after receiving confirmation of the purchase. Answer: FALSE Diff: 1 Type: TF Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Recall

4) In order to select appropriate mutual funds for yourself, you should determine your investment objectives, evaluate your risk tolerance, and the final step is to A) review and compare key information from the relevant Fund Facts documents. B) review and compare key information from the simplified prospectuses. C) open an account with a broker. D) consult a certified financial planner. Answer: A Diff: 2 Type: MC Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Applied 5) The most important expense statistic mentioned in the Fund Facts is the A) gross expense ratio. B) management expense ratio. C) total expense ratio. D) trading expense ratio. Answer: B Diff: 2 Type: MC Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Recall 6) At 55 years of age you may want to reduce risk by switching from very aggressive funds to balanced funds. If your portfolio is worth $498 000 and your family fund company charges you a 2 percent switch fee and 3 percent redemption fee, what will it cost to change funds? A) $4980 B) $9960 C) $24 900 D) $14 940 Answer: B Diff: 2 Type: MC Categories: Deciding Among Mutual Funds Financial Type: Quantitative Skill Type: Applied 7) Which of the following statements is true about a Fund Facts document? A) It must be provided to you within 72 hours of your purchase. B) It must be provided to you within 24 hours of your purchase. C) It replaces the simplified prospectus. D) It is designed to give investors key information about a mutual fund, in a language they can easily understand, at a time that is relevant to their investment decision. Answer: D Diff: 2 Type: MC Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Recall 26 Copyright © 2022 Pearson Canada Inc.

8) A Fund Facts document informs the investor of how the fund has performed over the past ________ year(s). A) 10 B) 5 C) 3 D) 1 Answer: A Diff: 2 Type: MC Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Recall 9) The Quick Facts section of the Fund Facts document provides all of the following pieces of information except A) frequency and date of any income or capital distributions. B) MER. C) name of the portfolio manager. D) minimum initial and subsequent investments. Answer: C Diff: 2 Type: MC Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Recall 10) List considerations you should take into account when purchasing a mutual fund. Answer: Your personal risk tolerance and goals for the funds Closely review the Fund Fact information sheets to determine which best match with your objectives. Investment objective - does that fit with your needs? Return history compared with its peers, just to make sure not a bottom performer Expense ratio (MER) compared with its peers Load structure to make sure it fits your needs Minimum investment and monthly amount requirements Risk profile of the fund compared with peers Holdings in the fund, types of stocks or bonds in the portfolio Assets under management, performance of the managers... the company Diff: 3 Type: ES Categories: Deciding Among Mutual Funds Financial Type: Qualitative Skill Type: Applied

Quotations of Mutual Funds 1) A mutual fund price quotation provides additional information on a benchmark fund so that you can immediately compare the fund's performance to an index. Answer: FALSE Diff: 2 Type: TF Categories: Quotations of Mutual Funds Financial Type: Qualitative Skill Type: Recall 2) For mutual funds, the net asset value (NAV) is reported A) on an hourly basis. B) on a daily basis. C) monthly on the close of the last Friday. D) weekly on Fridays just after market close. Answer: B Diff: 2 Type: MC Categories: Quotations of Mutual Funds Financial Type: Qualitative Skill Type: Recall 3) In evaluating the performance of your Canadian equity mutual fund, the most appropriate comparison would be its performance relative to the A) cost of living (CPI) index. B) S&P 500 index. C) Dow Jones Industrial Average. D) S&P/TSX composite index. Answer: D Diff: 3 Type: MC Categories: Quotations of Mutual Funds Financial Type: Qualitative Skill Type: Applied 4) What is the biggest advantage of an ETF over other funds? A) Better management B) Lower MERs C) Economies of scale D) Diversification Answer: B Diff: 2 Type: MC Categories: Quotations of Mutual Funds Financial Type: Qualitative Skill Type: Applied

Segregated Funds 1) Segregated funds are insurance products, but are similar to mutual funds as they offer a guarantee of as much as 100 percent of the deposit amount upon maturity or the death of the owner. Answer: FALSE Diff: 2 Type: TF Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall 2) Both segregated funds and mutual funds generally offer creditor protection in the event of bankruptcy. Answer: FALSE Diff: 1 Type: TF Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall 3) It is very easy for an investor to mistake a segregated fund for a mutual fund. Answer: TRUE Diff: 1 Type: TF Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall 4) The death benefit guarantee is particularly advantageous for older investors who still want to hold stocks in their portfolio. Answer: TRUE Diff: 1 Type: TF Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall 5) Segregated fund assets are normally exempt from seizure by creditors because the assets are legally considered insurance policies. Answer: TRUE Diff: 1 Type: TF Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall

6) One advantage that segregated funds have over mutual funds is A) the opportunity to designate a beneficiary. B) no loads. C) lower MERs. D) higher MERs. Answer: A Diff: 2 Type: MC Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall 7) For which of the following individuals would purchasing segregated funds be most appropriate? A) A young married couple looking for a high risk long-term growth portfolio B) A business owner who deals with creditors on a regular basis C) An investor seeking low management fees and low MERs D) An investor seeking special diversification in sector funds Answer: B Diff: 3 Type: MC Categories: Segregated Funds Financial Type: Qualitative Skill Type: Applied 8) Studies show that segregated funds A) consistently outperform stock markets because of their guarantee. B) consistently outperform mutual funds because of the probate fees. C) consistently underperform mutual funds because of their higher expenses. D) consistently outperform mutual funds because of the important insurance option. Answer: C Diff: 2 Type: MC Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall 9) The units of a segregated fund differ from the units of a mutual fund in that A) a segregated fund does not report a NAV. B) the units of the segregated fund are owned by the unit holder. C) each unit is insured from the date of purchase. D) the units of the segregated fund are owned by the insurance company. Answer: D Diff: 3 Type: MC Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall

10) Which of the following statements most correctly describes the guarantee on deposits offered by a segregated fund? A) The policy owner is guaranteed to receive at least 75 percent of their deposit back at maturity. B) The policy owner is guaranteed to receive 100 percent of their deposit back at maturity. C) The policy owner is guaranteed to receive at least 75 percent of their deposit back after 10 years. D) The policy owner is guaranteed to receive 100 percent of their deposit back after 10 years. Answer: A Diff: 2 Type: MC Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall 11) The difference between principal protection and the death benefit guarantee is that A) principal protection provides a guarantee on deposits after 10 years, whereas the determination of a guarantee on deposits with the death benefit guarantee is made at death. B) principal protection provides a guarantee on deposits at maturity, whereas the determination of a guarantee on deposits with the death benefit guarantee is made at death. C) principal protection provides a 75 percent guarantee on deposits at maturity, whereas the death benefit guarantee is a 100 percent guarantee at death. D) principal protection provides a 100 percent guarantee on deposits at maturity, whereas the death benefit guarantee is a 75 percent guarantee at death. Answer: B Diff: 2 Type: MC Categories: Segregated Funds Financial Type: Qualitative Skill Type: Recall

Personal Finance, Canadian Ed., 5e (Madura) Chapter 14 - Retirement Savings Planning Background on Retirement Planning 1) Longevity risk is the risk of outliving the money you've set aside for retirement. Answer: TRUE Diff: 2 Type: TF Categories: Background on Retirement Planning Financial Type: Qualitative Skill Type: Recall 2) What percentage of pre-retiree Canadians think they are behind on their retirement savings? A) 66 percent B) 25 percent C) 44 percent D) 85 percent Answer: A Diff: 2 Type: MC Categories: Background on Retirement Planning Financial Type: Qualitative Skill Type: Recall Old Age Security 1) To be eligible for Old Age Security retirement benefits, you will need to have worked in Canada for at least 10 years since turning 18. Answer: FALSE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 2) Old Age Security is funded by general tax revenues. Answer: TRUE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 3) Old Age Security can be deferred for five years, which would increase one's benefit by an additional 36 percent. Answer: TRUE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 1 Copyright © 2022 Pearson Canada Inc.

4) Pending rule changes from the government will require you to be 67 years old (instead of 65) before you can begin collecting Old Age Security retirement benefits. Answer: FALSE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Applied 5) If you had lived in Canada for 30 years, had $50 000 income from various pensions and were old enough to receive Old Age Security benefits, you would qualify for seventy five percent of the maximum OAS benefit. Answer: TRUE Diff: 3 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Applied 6) The Old Age Security system allows you to receive reduced benefits if you retire up to five years early. Answer: FALSE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 7) A pensioner who only receives Old Age Security income will also receive the maximum Guaranteed Income Supplement. Answer: TRUE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 8) Once a pensioner reaches age 71, she is able begin withdrawing money from her RRSP tax free. Answer: FALSE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Applied

9) Saving $100 per month from age 20 to age 70 with an eight percent return (compounded monthly) will give you over three quarters of a million dollars. Answer: TRUE Diff: 3 Type: TF Categories: Old Age Security Financial Type: Quantitative Skill Type: Applied 10) Martin began to receive his OAS benefit at age 68. As a result, his benefit will be increased by an additional 14.4 percent. Answer: FALSE Diff: 3 Type: TF Categories: Old Age Security Financial Type: Quantitative Skill Type: Applied 11) The guaranteed income supplement (GIS) benefit is gradually reduced if a pensioner receives any income other than the OAS pension. Answer: TRUE Diff: 2 Type: TF Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 12) Payments made to you by Old Age Security are based on A) the number of years you were a resident of Canada between ages 16 and 65. B) the length of time you worked in Canada prior to age 65. C) your average YMPE earnings between ages 18 and 65. D) the number of years you were a resident of Canada between ages 18 and 65. Answer: D Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 13) In 2020, if you were a resident of Canada from age 24 to 65, the monthly OAS benefit payment you would have received would have been approximately A) $614. B) $916. C) $551. D) $1165. Answer: A Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Applied 3 Copyright © 2022 Pearson Canada Inc.

14) Old Age Security benefits A) can be deferred five years which would increase your benefit by 36%. B) begins to be clawed back for people whose income reaches $50,000. C) can be claimed at age 60, but at a reduced amount. D) are a nontaxable benefit. Answer: A Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 15) If you were 28 years old when you moved to Canada and became a resident, at age 65 you would be entitled to A) a full OAS pension if your income is below $74 000. B) an OAS pension of 27/30 if your income is below approximately $115 000. C) an OAS pension depending on your life time YMPE earnings. D) an OAS pension of 37/40 if your income is below approximately $74 000. Answer: D Diff: 3 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Applied 16) Which of the following is a tax-free benefit? A) OAS B) CPP C) GIS D) YBE Answer: C Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 17) Income from which of the following sources would have no impact on OAS clawback? A) Tax free savings account (TFSA) B) Locked-in retirement account (LIRA) C) Canada Pension Plan D) Spousal RRSP Answer: A Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Applied

18) The Guaranteed Income Supplement (GIS) benefit will be subject to clawback if A) the pensioner has liquid savings of at least $10,000. B) the pensioner has total investments of at least $10,000. C) the pensioner receives any income other than OAS. D) the pensioner is under the age of 65. Answer: C Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 19) The Old Age Security Act was passed in A) 1952. B) 1967. C) 1975. D) 1985. Answer: A Diff: 1 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 20) Which of the following statements correctly describes a feature of the Old Age Security program? A) Benefits are adjusted annually on January 1st of each year. B) Benefits start automatically once you reach age 65. C) The OAS pension, GIS, and allowance benefit are all tax-free. D) The OAS and GIS benefits are subject to a means test. Answer: D Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall 21) Janice, 66, has earned income of $94 000 in 2020. The 2020 OAS income threshold is $79 054. What is her monthly OAS clawback? A) $174.90 B) $186.83 C) $168.45 D) $192.97 Answer: B Diff: 3 Type: MC Categories: Old Age Security Financial Type: Quantitative Skill Type: Applied

22) With respect to the allowance benefit, which of the following statements is correct? A) The spouse or common-law partner applying for the benefit must be between the ages of 55 and 64. B) The allowance benefit is available to the spouse or common-law partner of a pensioner who is receiving the OAS pension. C) The spouse or common-law partner applying for the benefit must be between the ages of 60 and 64. D) The allowance benefit was designed to reduce the financial burden that would result from the death of an OAS pensioner. Answer: C Diff: 2 Type: MC Categories: Old Age Security Financial Type: Qualitative Skill Type: Recall Canada Pension Plan 1) The combination of Old Age Security and the Canada Pension plan provide sufficient income to support the retirement lifestyle of most individuals. Answer: FALSE Diff: 1 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 2) If you earn the yearly maximum pensionable earnings (YMPE) amount in a given year, you and your employer will have funded the maximum amount to the Canada Pension Plan for that year. Answer: TRUE Diff: 2 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Applied 3) Both OAS and CPP require pensioners to apply for the benefits. Answer: TRUE Diff: 1 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall

4) Defined contribution pension plans are not worth taking advantage of because they are essentially the same as an RRSP. Answer: FALSE Diff: 2 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Applied 5) Pension sharing occurs when a married or common-law couple decides to share their CPP retirement pensions in order to reduce their income taxes. Answer: TRUE Diff: 1 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 6) CPP contributions begin as soon as you start working and earning a paycheque. Answer: FALSE Diff: 2 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 7) The CPP should be considered a significant part of your retirement planning. Answer: TRUE Diff: 1 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 8) Age 65 is commonly referred to as the normal retirement age. Answer: TRUE Diff: 1 Type: TF Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 9) Which of the following applies to the CPP? A) You will collect more total CPP if you claim it at age 60. B) The amount you qualify for can be increased by up to 42% if you defer claiming it. C) Most Canadians qualify for the maximum CPP retirement income. D) It is a tax-free benefit that provides an income of roughly $16 000 per year. Answer: B Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 7 Copyright © 2022 Pearson Canada Inc.

10) In 2020, what was the approximate maximum annual CPP benefit amount? A) $14 000 B) $10 000 C) $16 000 D) $18 000 Answer: A Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 11) If, at normal retirement age, you would have qualified for $1000 CPP income and $500 OAS income, what monthly income would you receive if you deferred them both by five years? A) $1950 B) $2100 C) $2130 D) $2040 Answer: B Diff: 3 Type: MC Categories: Canada Pension Plan Financial Type: Quantitative Skill Type: Applied 12) For each resident of Canada, their CPP entitlement is calculated based on their A) number of years worked as an adult resident of Canada with income under B) income earned each year between the YBE and YMPE. C) number of years up to age 65 as an adult resident of Canada. D) income earned above the YMPE each year. Answer: B Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 13) The yearly maximum pensionable earnings (YMPE) will A) change each year based on a calculation of average incomes in Canada. B) change each year based on inflation as measured by the CPI. C) be adjusted periodically based on government fiscal policy. D) be adjusted every few years based on average Canadian incomes and CPI. Answer: A Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall

14) For retirees, the most important difference between CPP and OAS is that A) only OAS can be taken early at a reduced amount. B) only OAS is based on income earned each year relative to the YMPE. C) only CPP can be taken early at a reduced amount. D) only CPP can be deferred to receive an increased monthly amount. Answer: C Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Applied 15) If Ramzi earned $46 000 from employment, approximately how much will he contribute to the CPP in 2020? The 2020 contribution rate, YMPE, and YBE are 5.25%, $58 700, and $3,500, respectively. A) $3081.75 B) $2231.25 C) $2898 D) $4140 Answer: B Diff: 3 Type: MC Categories: Canada Pension Plan Financial Type: Quantitative Skill Type: Applied 16) CPP offers A) a full survivor benefit to the spouse of a recipient who was receiving CPP on death. B) the option of collecting it up to five years early with a reduced benefit. C) an exclusion of 30 percent of your lowest earning years in the calculation of your CPP entitlement. D) the GIS benefit for low income seniors. Answer: B Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 17) In addition to providing a retirement pension, the CPP program also provides for a A) disability income benefit. B) critical illness benefit. C) long-term care benefit. D) supplemental health care benefit. Answer: A Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 9 Copyright © 2022 Pearson Canada Inc.

18) As a result of the 2016 pension reform, the CPP could best be characterized as a A) pay-as-you-go pension plan. B) steady state pension plan. C) a fully funded pension plan. D) steady state base plan with a fully funded enhanced benefit. Answer: D Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 19) Which of the following statements correctly describes a Canada Pension Plan drop out provision? A) You can drop out any months during which you were raising children under the age of five. B) You can drop out 20 percent of the lowest earning months during your contributory period. C) You can drop out any months during which you were collecting a CPP disability pension. D) You can drop out any months during which you were collecting a CPP critical illness benefit. Answer: C Diff: 3 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall 20) If your income for the year exceeds the YMPE, pensionable earnings = A) YMPE - YBE B) YMPE + YBE C) Income + YMPE + YBE D) Income + YMPE - YBE Answer: A Diff: 3 Type: MC Categories: Canada Pension Plan Financial Type: Quantitative Skill Type: Recall 21) If Sarah earned $76 000 from employment, approximately how much will she contribute to the CPP in 2020? The 2020 contribution rate, YMPE, and YBE are 5.25%, $58 700, and $3,500, respectively. A) $3990 B) $2231.25 C) $2898 D) $3806.25 Answer: C Diff: 3 Type: MC Categories: Canada Pension Plan Financial Type: Quantitative Skill Type: Applied 10 Copyright © 2022 Pearson Canada Inc.

22) At normal retirement age, you qualify for a CPP benefit of $1,000. What will be your new monthly benefit amount if you decide to take the CPP early at age 62? A) $912 B) $748 C) $892 D) $784 Answer: D Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Quantitative Skill Type: Applied 23) At normal retirement age, you qualify for a CPP benefit of $1,000. What will be your new monthly benefit amount if you decide to take the CPP later at age 67? A) $1025 B) $1168 C) $1144 D) $1086 Answer: B Diff: 2 Type: MC Categories: Canada Pension Plan Financial Type: Quantitative Skill Type: Applied 24) With respect to the CPP, which of the following statements is true? A) Employer contributions are a deductible business expense and are not considered a taxable benefit for the employee. B) Employee contributions to the CPP can be claimed as a refundable tax credit. C) Employee contributions to the CPP can be claimed as a tax deduction. D) Employer contributions are a deductible business expense and are considered a taxable benefit for the employee. Answer: A Diff: 3 Type: MC Categories: Canada Pension Plan Financial Type: Qualitative Skill Type: Recall Employer-Sponsored Retirement Plans 1) If you are age 65 and were in a defined-benefit pension plan for 22 years which was based on earning a benefit of 1.8 percent of your best three years earnings, you would receive around 39.6 percent of your salary from your pension. Answer: TRUE Diff: 2 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Quantitative Skill Type: Applied 11 Copyright © 2022 Pearson Canada Inc.

2) Once you are 'vested' in your company's pension plan, you can cash in the funds in if you decide to leave the company. Answer: FALSE Diff: 3 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Applied 3) In the past 10 years or so, many employers have shifted from defined-benefit to defined-contribution retirement plans to reduce their financial risk in funding employees' retirements. Answer: TRUE Diff: 2 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 4) If your employer offers a pension plan, that should be the first plan you consider because your employer will at least match your contributions to the plan. Answer: TRUE Diff: 2 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Applied 5) On average, a final average earnings plan and a career average plan will generate the same level of pension income. Answer: FALSE Diff: 2 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 6) If you earned $66 000 in 2020 and received a 2020 pension adjustment of $8200, then you would have $3680 in RRSP contribution room for 2021. Answer: TRUE Diff: 3 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Quantitative Skill Type: Applied

7) Once you leave a job with an employer, you will probably have to forfeit your pension plan unless you have been with the company for five or more years. Answer: FALSE Diff: 1 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 8) Every three years, an actuary will value a DCPP to determine if enough money is available in the pension account to pay for the benefits promised by the plan. Answer: FALSE Diff: 2 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 9) In a DCPP, the contribution rate, not the benefit amount, is guaranteed. Answer: TRUE Diff: 1 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 10) Employers are not obligated to make regular contributions to a DPSP. Answer: TRUE Diff: 1 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 11) Contributions within an employer-sponsored retirement plan must be vested with the employee no later than three years after the employee has become a member of the pension plan. Answer: FALSE Diff: 2 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 12) The maximum amount that may be contributed to an employee's DCPP in 2020 is $27 830. Answer: TRUE Diff: 1 Type: TF Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall

13) Allred Corporation's retirement plan will pay $250 a month for each year worked for the company commencing on the employee's 65th birthday. People must work for the company for 10 years to qualify for the pension. This plan is a A) flat benefit defined-benefit pension plan. B) defined-contribution pension plan. C) LIRA. D) unit benefit defined benefit pension plan. Answer: A Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Applied 14) In the last 10 years, many employers have shifted from A) defined-contribution to defined-benefit pension plans. B) defined-benefit to defined-contribution pension plans. C) group RRSPs to pension plans. D) registered retirement income funds to defined-contribution pension plans. Answer: B Diff: 1 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 15) If you have been in an employer-sponsored pension plan for three years and you leave your employer well before retirement, A) you are not entitled to the employer's contribution to your plan. B) you can transfer the funds to a RRIF. C) you can transfer the plan to your new employer if they have a plan the permits the transfer. D) you can withdraw the funds tax-free within 30 days of departure, if the amount is under . Answer: C Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall

16) You are a member of a defined-benefit pension plan that pays a two percent benefit for each year of service based on your best five year's earnings. If you qualify for an unreduced pension and have worked for the company for 30 years, your pension will be approximately A) The answer is unknown because the benefit must be calculated by an actuary. B) 60 percent of the average of your best five years' earnings. C) 50 percent of the average of your best five years' earnings. D) 60 percent of the average of your last five years' earnings. Answer: B Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Quantitative Skill Type: Applied 17) With which of the following plans will you be able to most accurately predict your retirement income in advance? A) Defined-contribution pension plan B) RRSP C) Traditional LIRA D) Defined-benefit pension plan Answer: D Diff: 1 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 18) Most defined-contribution pension plans allow some investment flexibility including the option to choose A) individual mortgages. B) commodity futures. C) real estate building rental. D) large-cap mutual fund units. Answer: D Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall

19) The retirement benefit you receive from a money purchase defined-contribution pension plan will be based on A) a certain percentage of your income in the later years of employment. B) a formula that guarantees a set amount to support a modest retirement lifestyle. C) the performance of the funds contributed on your behalf. D) the performance of your company's shares. Answer: C Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 20) In an employer-sponsored retirement plan, you should contribute at least A) the amount that maximizes what the employer contributes. B) three percent of your gross income in middle age. C) one percent of your net income in your early working years. D) nine percent of your gross income. Answer: A Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Applied 21) Which of the following is true regarding pension plans? A) A defined contribution pension plan is the same as an RRSP. B) Once you are vested in a pension plan, you can transfer the assets to your RRSP if you leave. C) Defined-benefit pension plans are always advantageous, but not defined-contribution plans. D) You should take advantage of them because the employer must contribute at least half the funding. Answer: D Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Applied 22) When you are young you should likely invest in investments that have A) lower risk and thus have higher growth potential. B) higher risk and thus have lower growth potential. C) lower risk and thus have lower growth potential. D) higher risk and thus have higher growth potential. Answer: D Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall

23) Pension splitting for couples over age 65 A) is only possible by equalizing RRSP plans. B) requires the couple to do a CPP pension assignment first. C) is only possible with employer pension and CPP income. D) can be applied to pension, CPP and RRIF income. Answer: D Diff: 3 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 24) James has a defined-benefit plan that pays him a pension of two percent of his average best three years' earnings. His best earnings year's are as follows: 2014

2015

2016

2017

2018

2019

2020 $104 000

What will be his annual pension benefit if he was with Plastis Co. for 30 years? A) $63 600 B) $64 200 C) $65 400 D) $63 000 Answer: C Diff: 3 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Quantitative Skill Type: Applied 25) James has a defined-benefit plan that pays him a pension of two percent of his average best three consecutive years' earnings. His best earnings year's are as follows: 2014

2015

2016

2017

2018

2019

2020 $104 000

What will be his annual pension benefit if he was with Plastis Co. for 30 years? A) $63 600 B) $64 200 C) $65 400 D) $63 000 Answer: B Diff: 3 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Quantitative Skill Type: Applied

26) The responsibility for the funding status of a defined benefit pension plan belongs to th e A) employer. B) employee. C) actuary. D) trustee. Answer: A Diff: 1 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 27) Which of the following statements is true about defined benefit pension plans (DBPPs)? A) In a DBPP, investment decisions are made jointly by the employee and the employer. B) Any shortfall in a DBPP must be covered by both the employer and the employee. C) A DBPP is ideally suited for individuals who are good savers. D) A DBPP is a retirement plan on automatic pilot. Answer: D Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 28) Rolando is a member of his company's DCPP. Last year, his salary was $54 500 and he made a voluntary contribution of 5 percent of his salary to his DCPP. His employer matched his contribution. What was Rolando's pension adjustment? A) $10 900 B) $2,725 C) $5,450 D) 18% of his salary, or $9,810 Answer: C Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Quantitative Skill Type: Applied 29) Which of the following statements is true about defined contribution pension plans (DCPPs)? A) Growth stocks are popular investment choices for a DCPP. B) With a DCPP, the employer is not obligated to provide a predefined benefit amount. C) The employer determines how the money in a DCPP should be invested. D) If the employee is within 10 years of their retirement, they should contact their employer's human resources department to get an accurate projection of their retirement income. Answer: B Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 18 Copyright © 2022 Pearson Canada Inc.

30) Which of the following statements is true with respect to the tax treatment of deferred profit-sharing plans (DPSPs)? A) DPSP contributions are a non-taxable benefit for employees. B) Employer contributions are not tax deductible. C) The growth of plan contributions is taxable. D) Employee withdrawals from a DPSP are tax-free. Answer: A Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 31) The calculation for the 2020 RRSP contribution limit takes into consideration which of the following pieces of information? A) 2020 pension adjustment B) 2020 income C) 2021 income D) 2019 pension adjustment Answer: D Diff: 2 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall 32) Jitender is a member of a defined benefit pension plan. In 2019, she and her employer each deposited $5,000 to the plan. Her 2019 pensionable earnings are $70 000 and her plan has an accrual rate of 1.5 percent. What is her 2020 RRSP contribution limit? A) $2,600 B) $8,850 C) $3,750 D) $12 600 Answer: C Diff: 3 Type: MC Categories: Employment Sponsored Retirement Plans Financial Type: Quantitative Skill Type: Applied

33) What are the advantages of a group RRSP? Answer: - Contributions to a group RRSP are normally made through payroll deductions. - You can choose and manage your investment options within your individual account to suit your goals. - The fees associated with the administration and investment options of a Group RRSP are typically lower than they would be for an individual RRSP. - The employer may match your contributions up to percentage of your income. Diff: 2 Type: ES Categories: Employment Sponsored Retirement Plans Financial Type: Qualitative Skill Type: Recall Individual Retirement Savings Plans 1) An RRSP allows tax-deductible contributions of up to 18 percent of gross income regardless of whether you are enrolled in a pension plan at work. Answer: FALSE Diff: 1 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 2) Sally can use the Home Buyers Plan (HBP) to withdraw $50 000 from her RRSP for a down payment on a home as long as it is her first home and she can pay it back in ten years. Answer: FALSE Diff: 2 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Applied 3) All of your contributions to RPPs and RRSPs are tax deductible dollar for dollar against gross earned income. Answer: TRUE Diff: 2 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 4) Individuals in the 55 to 64 age category make the largest percentage of RRSP contributions. Answer: TRUE Diff: 2 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall

5) The maximum RRSP contribution limit for 2020 is $27 230. Answer: TRUE Diff: 1 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 6) Withdrawals under the Lifelong Learning Plan (LLP) can continue until January of the fourth after the first year of your first withdrawal. Answer: TRUE Diff: 2 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 7) The minimum required income to open a TFSA account is $3,500. Answer: FALSE Diff: 1 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 8) TFSAs can be used for short-term and long-term goals. Answer: TRUE Diff: 1 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 9) How much you can contribute to your RRSP depends on your A) earned income from the current year. B) tax bracket and previous contributions. C) accumulated room and the performance of your RRSP holdings. D) earned income and pension adjustments from previous years. Answer: D Diff: 1 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Applied

10) You have earned income of $56 000 for last year. You and your employer each contribute 50 percent to your defined contribution pension plan. The employer contributed $3500. How much of an RRSP contribution can you make this year, assuming you have no accumulated RRSP room? A) $3500 B) $10 080 C) $3080 D) $6580 Answer: C Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Quantitative Skill Type: Applied 11) Which of the following is true about RRSPs? A) You can withdraw funds tax free once you are over age 71. B) There is no limit on the dollar amount you can contribute. C) Your investment income is tax-sheltered in the plan. D) You can transfer the funds to your children tax-sheltered. Answer: C Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 12) RRSP contribution room A) can be carried forward up to and including age 71. B) is eliminated each year if it is not used. C) can be carried forward until age 65. D) can be used until age 75 as long as you have earned income. Answer: A Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Applied 13) Tax-free withdrawals can be made from an RRSP under which of the following circumstances? A) Each spouse can withdraw $40 000 tax-free for the purchase of a house. B) You can withdraw $10 000 under the Lifelong Learning Plan to educate your children. C) You can withdraw any amount necessary to pay off your mortgage if over 55 years of age. D) You can withdraw $10 000 for two years for your spouse to be a full time student. Answer: D Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Applied 22 Copyright © 2022 Pearson Canada Inc.

14) Tax-free withdrawals from an RRSP for the HBP or LLP A) represent lost contribution room in the future. B) must be paid back on schedule or added to your taxable income. C) do not affect the compounding of your investments inside the RRSP. D) can be paid back to a spousal account instead of the account they were withdrawn from. Answer: B Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 15) The main purpose of a withholding tax is to A) discourage you from making withdrawals from your RRSP. B) account for all of the taxes payable on your RRSP withdrawal. C) assist you with tax payments on your RRSP withdrawal. D) force you to take additional money from your RRSP to account for the withholding tax. Answer: C Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 16) When comparing an individual RRSP account to a self-directed RRSP account, which of the following statements is true? A) An individual RRSP account allows you to hold a variety of investments within one plan. B) A self-directed RRSP account is more costly to administer. C) If an investor wants to own a variety of mutual funds, stocks, and bonds, they should open an individual RRSP account. D) A self-directed RRSP account is sufficient for the needs of investors who are opening their first RRSP account. Answer: B Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 17) Investments that are qualified to be held within an RRSP account include A) shares of private corporations. B) antiques. C) coin and stamp collections. D) Canadian mortgages. Answer: D Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 23 Copyright © 2022 Pearson Canada Inc.

18) Which of the following is an advantage of a spousal RRSP? A) The lower-income spouse receives a tax deduction for contributions made. B) Couples may be able to equalize their RRSP assets, which can lead to income splitting opportunities in retirement. C) A spouse who is not yet 71 can contribute to the spousal RRSP of a spouse who has passed age 71. D) The contributing spouse has the option to become the annuitant of the other spouse's spousal RRSP. Answer: B Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 19) Under the Lifelong Learning Plan (LLP), A) the maximum annual withdrawal is $20 000. B) the withdrawal is taxable unless it is paid back into an RRSP over a 15-year period. C) payments must begin no later than the beginning of the fourth year after your first withdrawal. D) the withdrawal can be made from an RRSP owned by you and/or your spouse or common-law partner. Answer: D Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall 20) Compared to an RRSP, what is a distinguishing feature of a TFSA? A) Unused contributions can be carried forward. B) The growth on savings is tax deferred. C) It can be used for long-term savings. D) Withdrawals can be re-contributed. Answer: D Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall

21) Misha turned 18 on July 13, 2012. He has never contributed to a TFSA. Today is July 3, 2020. If he decided to open a TFSA account today and maximize his contribution, how much could he contribute to a TFSA account? A) $60 000 B) $48 500 C) $54 500 D) $49 500 Answer: C Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Quantitative Skill Type: Recall 22) Which of the following is a true statement with respect to a LIRA? A) A LIRA is a private pension plan that is created when an individual transfers vested money from an employer-sponsored pension plan. B) The main purpose of a LIRA is to provide an opportunity for employers to move an employee's pension plan "off the books" when the employee leaves a pension plan. C) Individuals who leave most federally regulated pension plans can transfer their pension assets to a LIRA. D) LIRAs provide an opportunity to make regular contributions. Answer: A Diff: 2 Type: MC Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Recall Your Retirement Planning Decisions 1) The Lifelong Learning Plan (LLP) allows full-time students to withdraw $20 000 per year for two years from their RRSPs to finance their educations. Answer: FALSE Diff: 3 Type: TF Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 2) A registered life annuity has an advantage over a RRIF because you will no longer be exposed to the risk that your funds could run out before your death. Answer: TRUE Diff: 1 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Applied

3) A TFSA is not as good for retirement funding as an RRSP. Answer: FALSE Diff: 2 Type: TF Categories: Individual Retirement Savings Plans Financial Type: Qualitative Skill Type: Applied 4) According to a 2007 study, two thirds of Canadians who are expecting to retire in in 2030 are not saving enough to cover necessary living expenses. Answer: TRUE Diff: 1 Type: TF Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 5) If your employer offers a retirement plan, it should be the first plan you consider. Answer: TRUE Diff: 1 Type: TF Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 6) Most defined contribution pension plans are set up such that every dollar contributed by the employee is matched dollar for dollar by the employer. Answer: TRUE Diff: 1 Type: TF Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 7) In order to accumulate more wealth by retirement, it is important to avoid mutual funds with high management expense ratios (MERs). Answer: TRUE Diff: 1 Type: TF Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall

8) Even though you expect to receive OAS and CPP, a common rule of thumb is in order to be able to retire comfortably is A) to save an additional 10 percent of gross earnings in a variety of pension investments. B) to save at least 10 percent of after-tax earnings in retirement accounts. C) to make sure you are in a long-term pension plan. D) to maximize OAS and CPP and GIS. Answer: B Diff: 2 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 9) If you are far from retirement age and wish to maximize your income in retirement, you should consider investing in A) government bonds or bond funds. B) guaranteed investment certificates. C) mutual funds with high-growth stocks. D) corporate bonds. Answer: C Diff: 1 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 10) Which of the following is an important factor to consider in deciding between saving in a TFSA account or an RRSP account? A) Your tax bracket B) The appropriate risk level C) Tax sheltering of investment income D) The types of investment vehicles Answer: A Diff: 2 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Applied 11) Which is a key difference between RRSPs and TFSAs? A) TFSA withdrawals are taxed. B) RRSP contribution limits accumulate. C) TFSAs give tax deductions on contributions. D) RRSP withdrawals are taxed. Answer: D Diff: 3 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 27 Copyright © 2022 Pearson Canada Inc.

12) If you qualify, the maximum withdrawal allowed under the Home Buyers' Plan (HBP) is A) $30 000 per person. B) $35 000 per person. C) $35 000 per couple. D) $60 000 per couple. Answer: B Diff: 1 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 13) According to Statistics Canada, for many Canadians, the most important source of retirement income will be A) the OAS benefits. B) the investments in their RRSPs. C) the equity they have in their homes. D) their pension plans. Answer: C Diff: 2 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 14) Which is a key difference between RRSPs and TFSAs? A) TFSA withdrawals are tax-free. B) RRSP contribution limits accumulate. C) TFSAs give tax deductions on contributions. D) RRSP withdrawals are tax-free. Answer: A Diff: 3 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Recall 15) Jacqueline, age 22, has decided to contribute 10 percent of her after-tax income, or $250 per month to an RRSP. She will invest in a growth portfolio and projects that her average rate of return will be 7 percent per year, compounded annually. How much money will she have accumulated by age 65, rounded to the nearest dollar? A) $729 453 B) $846 298 C) $458 944 D) $766 887 Answer: D Diff: 2 Type: MC Categories: Your Retirement Planning Decisions Financial Type: Quantitative Skill Type: Applied 28 Copyright © 2022 Pearson Canada Inc.

16) Jeremy, age 25, is a resident of Notaxlandia. He projects that he will need a retirement income of $4,000 per month, at the beginning of each month ,when he retires at age 65. How much must he save at the end of each month, starting now, in order to have enough money at retirement? Assume that he will earn 8 percent, compounded annually, before retirement, and 5 percent, compounded annually, in retirement on his investments. He expects to live to age 90. Answer: In order to have sufficient retirement savings, the future value of Jeremy's retirement savings must equal the present value, at retirement, of his desired monthly retirement income. Present value, at retirement, of desired retirement income: P/Y = 12, C/Y = 1, N = 25 × 12 = 300, I/Y = 5, PMT = $4000, FV = $0, CPT PV = ? $694 695 Monthly savings required to reach required future value of Jeremy's retirement savings: P/Y = 12, C/Y = 1, N = 40 × 12 = 480, I/Y = 8, PV = $0, FV = $694 695 CPT PMT = ? $216 Jeremy must save $216 at the end of each month, starting now, in order to have enough money at retirement. Diff: 3 Type: ES Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Applied

17) Identify the similarities and differences between RRSP and TFSA accounts and indicate implications. Answer: There are many possibilities: Contribution room: Both accumulate year after year, however, the RRSP room is based on 18 percent of previous year's earned income minus pension adjustment to a maximum. There is a lot more room for high income individuals. The TFSA is currently $6000 per year for everyone and will likely increase in steps along with inflation. Withdrawals: Taxed for RRSPS as income, not for TFSAs. With the RRSP you lose the room forever unless using the HBP or LLP, but for TFSAs you can replace funds the next year. This makes the TFSA much more flexible for various financial planning goals and shorter term goals than retiring. It also makes the TFSA important in retirement as income from it will not be included in taxable income so your OAS benefit is less likely to be clawed back. Tax deduction for contributions: Yes for RRSPs so attractive to those in higher tax bracket. No deduction for TFSAs. Tax sheltering: Investment growth is tax sheltered in both accounts, but for RRSPs all funds withdrawn are fully taxed as income, but not for TFSAs. Investment options: List of qualified investments is similar. Diff: 2 Type: ES Categories: Your Retirement Planning Decisions Financial Type: Qualitative Skill Type: Applied Estimating Your Future Retirement Savings 1) Saving $2000 per year from age 25 to 35 will give you more money at age 65 than saving $4000 per year from age 40 to 50, if all your funds grow at five percent. Answer: TRUE Diff: 3 Type: TF Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied

2) If you invested $10 000 in an RRSP 30 years ago and it has a value today of $100 000, what amount will you pay tax on when you withdraw it during your retirement years? A) Only on the initial $10 000 B) Only on the $90 000 growth C) On all $100 000 as it is withdrawn D) There is no tax to be paid in retirement. Answer: C Diff: 2 Type: MC Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied 3) You want to save $400 000 to supplement your pension income to retire early at age 60. You have 26 years to accomplish this and already have $90 000 saved. Assuming an eight percent annual return, how much should you set aside each month to reach this goal? A) $311 B) $267 C) $1072 D) $994 Answer: B Diff: 3 Type: MC Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied 4) What does Shelley need to save monthly to make sure she is on track to reach her retirement goal of having saved by the time she reaches age 65? She is 48 years old, has been contributing $400 per month and has in her RRSP. Assume she will make an annual return of seven percent. A) $1275 B) $336 C) $1133 D) $681 Answer: B Diff: 3 Type: MC Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied

5) You are retiring and the balance of your RRSP is $203 126. What amount of monthly income could this provide you for 20 years if you can get a four percent compound annual return? A) $1223 B) $846 C) $880 D) $1782 Answer: A Diff: 3 Type: MC Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied 6) What rate of return (compounded monthly) will you need, to reach a lump-sum total of in 20 years if you contribute $500 per month? A) 12.1 percent B) 8.9 percent C) 13.2 percent D) 7.31 percent Answer: A Diff: 3 Type: MC Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied 7) Arnie is 21 years old and earning $35 000 annually. If inflation averages three percent annually over his career, what will he have to earn at age 60 to equal his current pay? A) $105 500 B) $114 171 C) $128 500 D) $110 846 Answer: D Diff: 3 Type: MC Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied

8) Alonzo is 35 years old and earning $57 000 annually. He has a two percent defined-benefit plan based on the average of his last five years of income. He just started saving $2500 per year in an RRSP and expects to earn seven percent annually. Assume that the average of his last five years of employment earnings is $65 000. How much annual income will he have if he decides to retire at age 65 and expects to live to age 85? Answer: At age 65 the RRSP will be worth a lump sum of $236 152. Withdrawing this annually from an RRIF with the same rate of return (7%) for 20 years will provide him with an annual income of $22 291. The defined benefit plan will provide him with 60 percent (30 years × 2 percent) × $65 000 = $39 000 CPP assume he will get the maximum of $13 000 a year OAS, assume some claw back as his total income will be too high, so estimate $6000 from OAS. His total annual retirement income until age 85 will be approximately $80 000. Diff: 3 Type: ES Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied 9) Paul starts saving $1000 per year from age 25, while Harper starts saving $5000 per year at age 45. At a moderate rate of return of 7 percent, compounded annually, how much will each have at age 65? Answer: Paul P/Y = 1, C/Y = 1, N = 40, I/Y = 7, PV = $0, PMT = -$1000, CPT FV = $199 635 Harper P/Y = 1, C/Y = 1, N = 20, I/Y = 7, PV = $0, PMT = -$5000, CPT FV = $204 977 Paul will have $199 635. Harper will have $204 977, about the same. Diff: 3 Type: ES Categories: Estimating Your Future Retirement Savings Financial Type: Quantitative Skill Type: Applied

Personal Finance, Canadian Ed., 5e (Madura) Chapter 15 - Retirement Income Planning Retirement Income Planning Checklist 1) Your spending habits before and after retirement should be fairly similar. Answer: FALSE Diff: 1 Type: TF Categories: Retirement Income Planning Checklist Financial Type: Qualitative Skill Type: Recall 2) Which of the following types of insurance are you most likely to need in retirement? A) Life insurance and health insurance B) Health insurance and long-term care insurance C) Life insurance and disability insurance D) Long-term care insurance and disability insurance Answer: B Diff: 2 Type: MC Categories: Retirement Income Planning Checklist Financial Type: Qualitative Skill Type: Recall Estimating Your Retirement Budget 1) The single factor over which you have the most control in your retirement budget is your spending. Answer: TRUE Diff: 1 Type: TF Categories: Estimating Your Retirement Budget Financial Type: Qualitative Skill Type: Recall 2) It is difficult for someone who is many years away from retirement to come up with a forecast of their spending needs in retirement. Answer: FALSE Diff: 1 Type: TF Categories: Estimating Your Retirement Budget Financial Type: Qualitative Skill Type: Recall

3) Which of the following retirement expenses is likely to decrease in retirement? A) Health insurance B) Personal loans C) Property taxes D) Magazines, books, and newspapers Answer: B Diff: 2 Type: MC Categories: Estimating Your Retirement Budget Financial Type: Qualitative Skill Type: Recall 4) Which of the following retirement expenses is likely to increase in retirement? A) Car maintenance B) Disability insurance C) Childcare D) Charitable donations Answer: D Diff: 2 Type: MC Categories: Estimating Your Retirement Budget Financial Type: Qualitative Skill Type: Recall Retirement Income Conversion Options 1) LIRAs and locked-in RRSPs are a lot less flexible than RRSPs because they convert to LIFs and LRIFs and have limits on the amounts that can be withdrawn each year. Answer: TRUE Diff: 3 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Applied 2) In general, retirement savings from employer-sponsored plans and personal plans must be converted to retirement income or transferred to a retirement income vehicle by the end of the year in which you turn 71. Answer: TRUE Diff: 2 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall

3) Retirement income from a defined benefit pension plan can only be paid as a single lifetime income. Answer: FALSE Diff: 2 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 4) If both the employee and their spouse die before the end of the pension guarantee period, any remaining benefits are no longer payable. Answer: FALSE Diff: 2 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 5) The retirement income conversion options for a group RRSP and an individual RRSP are identical. Answer: TRUE Diff: 2 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 6) Your minimum RRIF withdrawal can be based on your age or that of your spouse or common law partner. Answer: TRUE Diff: 1 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 7) Naysa, age 77, will have to withdraw $19 435 from her RRIF by the end of the year. Her RRIF was valued at $325 000 on January 1st. Answer: FALSE Diff: 2 Type: TF Categories: Retirement Income Conversion Options Financial Type: Quantitative Skill Type: Recall 8) Income from the CPP program qualifies for pension splitting. Answer: FALSE Diff: 1 Type: TF Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 3 Copyright © 2022 Pearson Canada Inc.

9) A financial contract that provides guaranteed payments until one's death is A) a life pension. B) a life annuity. C) a guaranteed RRIF. D) a life GIC. Answer: B Diff: 1 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 10) Before the end of the year in which you have your 71st birthday A) you must transfer your RRSP assets to a RRIF. B) the assets inside your RRSP must be converted to cash and placed in a RRIF. C) you must pay tax on the profits sheltered in your RRSP. D) you must start annual withdrawals of 18 percent of the value of your RRIF. Answer: A Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 11) Which of the following is true regarding LIRA and locked-in RRSP accounts at age 71? A) LRIFs and LIFs can be cashed in but will be fully taxed. B) Some provinces have LIFs and some have LRIFs. C) At age 80, LRIF funds must be used to purchase a life annuity. D) LRIFs and LIFs have the same withdrawal schedule throughout the retirement years. Answer: B Diff: 3 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 12) Retirement income conversion options exist in order to provide all of the following benefits except: A) provide you with a regular source of retirement income. B) spread out the tax burden associated with making withdrawals from a taxable registered plan. C) convert your tax deferred savings to taxable income. D) minimize the need for you to return to the workforce. Answer: D Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall

13) Normal retirement age is age A) 60. B) 65. C) 70. D) 75. Answer: B Diff: 1 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 14) Vanessa, age 60, has worked with WeCare Health Solutions for 24 years. Her company pension plan lists age 65 as the normal retirement age and the plan also contains a provision for an early unreduced pension if an employee reaches a pension factor of 85. Does she qualify for an unreduced pension? A) No, the combination of her age and years of service is equal to 84. B) Yes, the combination of her normal retirement age and years of service is equal to 89. C) No, she is too young to retire since her pension plan considers the normal retirement age to be age 65. D) No, her current age is below the pension factor threshold. Answer: A Diff: 3 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 15) If you are not vested, and you leave the plan, pension benefits may be A) left in your former employer's pension account. B) transferred to your new employer, if it has an employer-sponsored pension plan that permits the transfer. C) taken in cash as a taxable benefit or transferred to your RRSP. D) transferred to an individual locked-in retirement account (LIRA). Answer: C Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall

16) The amount of pension income an employee will receive under a defined benefit pension plan is based on their A) retirement age, the plan's accrual rate, and the employee's health. B) retirement age, the plan's accrual rate, and the employee's years of pensionable service. C) pensionable earnings, their retirement age, and the employee's years of pensionable service. D) pensionable earnings, the plan's accrual rate, and the employee's years of pensionable service. Answer: D Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 17) Which of the following defined benefit pension plan income options will result in the highest income amount? A) Single Lifetime Guaranteed at Least 5 Years B) Joint Lifetime Guaranteed at Least 5 Years C) Single Lifetime Guaranteed at Least 10 Years D) Single Lifetime Answer: D Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 18) The statement "The larger the investment portfolio, the greater the potential retirement income benefit" applies to which of the following retirement income benefit options? A) DBPP B) LIRA C) CPP D) OAS Answer: B Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 19) The retirement income payable from which of the following retirement income benefit programs is independent of the performance of any underlying investment portfolio? A) DCPP B) RRSP C) CPP D) TFSA Answer: C Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 6 Copyright © 2022 Pearson Canada Inc.

20) Which of the following retirement income benefits may be received as a 10-year term annuity? A) DPSP B) DBPP C) CPP D) DCPP Answer: A Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 21) What is the main difference between a RRSP and a RRIF? A) The list of the types of investments that qualify to be held within a RRIF is smaller. B) Unlike an RRSP, assets held within a RRIF must be used to provide a retirement income and cannot be cashed in. C) Investments that can decrease significantly in value should not be held within a RRIF. D) A certain percentage of the assets held within a RRIF must be taken into income each year after the year in which the RRIF was established. Answer: D Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 22) What is the main advantage of a registered annuity over a RRIF? A) The minimum required withdrawal amounts from a registered annuity are much lower. B) Registered annuity income is fixed and you no longer have control over your investments. C) You are no longer exposed to the risk that your investments may decrease in value. D) Registered annuities are more flexible than a RRIF. Answer: C Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall

23) Which of the following is not one of the circumstances under which you can access your locked-in pension benefits? A) Shortened life expectancy B) Small account balance C) Ceased to be a resident in Canada for at least one calendar year D) Financial difficulties dues to low income or high medical expenses Answer: C Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 24) For individuals under 65 years of age, the major type of qualifying income that can be allocated to a spouse or common-law partner includes A) pension income from a registered pension plan (RPP). B) pension income from an RPP. C) pension income from a RRSP annuity. D) payments from or under a registered retirement income fund (RRIF). Answer: B Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 25) Trina, age 65, and Peter age 65, would like to share their CPP income. The couple have been married for 40 years. During their marriage, Trina contributed to the CPP for 36 years and Peter contributed for 24 years. Trina is eligible to receive a CPP retirement income of $1050, whereas Peter is only eligible to receive $550. What will be their respective CPP pension income after pension sharing? A) Trina $800; Peter $800 B) Trina $982.50; Peter $617.50 C) Trina $1050; Peter $550 D) Trina $742.50; Peter $857.50 Answer: D Diff: 3 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall

26) Which of the following statements is not true about reverse mortgages? A) The loan amount has to be repaid within 25 years. B) The set up costs are high. C) The proceeds from a reverse mortgage may be received as a single lump sum, a line of credit, or as an annuity. D) An applicant must be 60 years of age or older. Answer: A Diff: 2 Type: MC Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall 27) List and describe the retirement income conversion options for a defined contribution pension plan (DCPP). Answer: The retirement income conversion options for a DCPP include a registered life annuity, a Locked-in Retirement Income Fund (LRIF), a Life Income Fund (LIF), a Prescribed RRIF (P-RRIF), or a Restricted LIF (RLIF)3 With a registered annuity, you are no longer exposed to the risk that your investments may decrease in value. However, your annuity income is fixed and you no longer have control over your investments. LIFs and LRIFs share the same minimum withdrawal amount as RRIFs. For both LIFs and LRIFs, there is an annual maximum withdrawal limit, so the investment cannot be cashed in. The maximum withdrawal calculations for a LIF and LRIF are different. In Newfoundland, a LIF has to be converted to a life annuity at age 80. LIFs and LRIFs are not available in Saskatchewan. Instead, a Prescribed RRIF (P-RRIF) is the only retirement income conversion option in that province. With a P-RRIF, there is no maximum annual withdrawal limit. Manitoba also has a P-RRIF option, but only allows 50 percent of locked-in assets to be transferred to a P-RRIF.the federal government allows federally regulated pension funds to be transferred to a Restricted LIF (RLIF). The RLIF is slightly different from a LIF in that it gives you a one-time opportunity to transfer up to 50% of your pension funds into a regular RRSP or RRIF. Diff: 2 Type: ES Categories: Retirement Income Conversion Options Financial Type: Qualitative Skill Type: Recall

Spending Your Investment Portfolio 1) Unless you purchase a life annuity, you will always be exposed to longevity risk. Answer: TRUE Diff: 1 Type: TF Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 2) In the Evensky and Katz cash flow reserve strategy, the bond portfolio is a source of steady, reliable income. Answer: FALSE Diff: 2 Type: TF Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 3) In income bucketing, the bucket segment categories associated with the Goals category are labelled essential, optional, and one-time. Answer: FALSE Diff: 2 Type: TF Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 4) At a 3 percent inflation rate, $100 today will only be worth $55.37 in 20 years. Answer: TRUE Diff: 2 Type: TF Categories: Spending Your Investment Portfolio Financial Type: Quantitative Skill Type: Applied 5) If you want to save $1 000 000 for retirement with $200 monthly deposits at eight percent interest compounded monthly, how long will it take? A) 50 years, 1 month B) 43 years, 3 months C) 44 years, 4 months D) 44 years, 1 month Answer: C Diff: 3 Type: MC Categories: Spending Your Investment Portfolio Financial Type: Quantitative Skill Type: Applied

6) Danielle is 40 years old and has saved $150 000 in her RRSP. Her goal was to reach by the time she turns 60. How much more will she have to save each year if she maintains a nine percent annual return on her investments? A) $3115 B) $31 150 C) $15 280 D) $6230 Answer: A Diff: 3 Type: MC Categories: Spending Your Investment Portfolio Financial Type: Quantitative Skill Type: Applied 7) Which retirement income strategy would be best suited to leaving a legacy, or bequest, to your heirs? A) Income only strategy B) Fixed dollar strategy C) Constant percent strategy D) RRIF minimum withdrawal strategy Answer: A Diff: 2 Type: MC Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 8) Which retirement income strategy is almost certain to provide a retirement income that is less than what the portfolio should be able to provide? A) Income only strategy B) Fixed dollar strategy C) Income bucketing strategy D) Evensky and Katz cash flow reserve strategy Answer: A Diff: 2 Type: MC Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 9) Which retirement income strategy addresses sequence of returns risk? A) Fixed dollar strategy B) Evensky and Katz cash flow reserve strategy C) Constant percent strategy D) RRIF minimum withdrawal strategy Answer: B Diff: 2 Type: MC Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 11 Copyright © 2022 Pearson Canada Inc.

10) Which retirement income strategy is most likely to result in fluctuating withdrawals? A) Income bucketing strategy B) Evensky and Katz cash flow reserve strategy C) Constant percent strategy D) fixed dollar strategy Answer: C Diff: 2 Type: MC Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 11) Cognitive impairment risk is most likely a concern with which retirement income strategy? A) Fixed dollar strategy B) Income only strategy C) Constant percent strategy D) Income bucketing strategy Answer: D Diff: 2 Type: MC Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall 12) Define the various retirement risk factors. Answer: Longevity risk is the risk of outliving your retirement income. Purchasing power risk is the risk that your retirement income will not be worth as much in the future as it is today. Sequence of returns risk is the risk that your portfolio experiences negative rates of return just as you begin making retirement income withdrawals from the portfolio. Cognitive impairment risk is the risk that you may not be able to make sound financial planning decisions due to cognitive impairment. Diff: 2 Type: ES Categories: Spending Your Investment Portfolio Financial Type: Qualitative Skill Type: Recall

Personal Finance, Canadian Ed., 5e (Madura) Chapter 16 - Estate Planning Background on Wills 1) Two key goals of estate planning are to ensure that your assets pass to your chosen beneficiaries and to minimize taxes to be paid. Answer: TRUE Diff: 1 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 2) If an administrator is appointed to settle an estate, this can cause delays, additional expenses and decisions the testator would not have wished. Answer: TRUE Diff: 3 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Applied 3) If you die intestate, your surviving spouse, or if you do not have a spouse, then your child, if over the age of 19, will become executor of your estate. Answer: FALSE Diff: 2 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Applied 4) If a spouse dies intestate all their assets will transfer to the surviving spouse. Answer: FALSE Diff: 1 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 5) A will, while nice to have, isn't particularly important in estate planning because each province has laws to determine the distribution of assets when a will was not created. Answer: FALSE Diff: 1 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall

6) To create a will, a person must be of legal age, be mentally competent, and not be subject to undue influence or threats by others. Answer: FALSE Diff: 1 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 7) A handwritten will is called a notarial will. Answer: FALSE Diff: 1 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 8) The individual who makes a will is commonly known as a testator. Answer: TRUE Diff: 1 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 9) The inheritance for any beneficiary under the age of 19 is held in trust until the beneficiary turns 19. Answer: FALSE Diff: 2 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 10) A will created by a First Nations individual is governed by provincial legislation if they live off reserve. Answer: TRUE Diff: 2 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall

11) Which of the following is necessary for an English form will to be valid? A) It must be written in the testator's handwriting. B) It must be dated within ten years of death. C) It must be signed by the testator and two witnesses. D) The person writing the will must be over age 21 at the time the will is written. Answer: C Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 12) A holograph will A) is the most common will in Quebec. B) remains in effect after a new marriage. C) does not require the signatures of witnesses. D) must be witnessed by a notary or lawyer. Answer: C Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 13) There may be a need to distribute half of the estate to the spouse and the other half to any other beneficiaries due to A) intestacy law. B) the wills variation Act. C) the preferential marital share. D) consanguinity. Answer: C Diff: 1 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 14) The primary purpose of a preferential share is to A) give each former spouse a share of the assets in the case of multiple marriages. B) provide for the appropriate distribution of matrimonial property. C) ensure dependants are looked after. D) divide assets fairly between the spouse and progeny. Answer: B Diff: 2 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall

15) A trustee is an individual or organization that is responsible for A) carrying out the administration involved in settling an estate. B) selling the assets to one or more of the beneficiaries of a will. C) distributing the assets to one or more of the beneficiaries of a will. D) managing the assets held in trust while the estate is settled. Answer: D Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 16) What is the primary problem with dying intestate? A) An administrator will be appointed to distribute the estate according to law. B) Any children will become wards of the state. C) Medical personnel will be responsible for decisions about your care. D) Your estate will flow to the government. Answer: A Diff: 2 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Applied 17) To create a valid will, an individual must be A) financially viable. B) mentally competent. C) physically competent. D) visually competent. Answer: B Diff: 2 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 18) An English form will requires the signatures of the A) lawyer and two witnesses. B) executor and one witness. C) testator and two witnesses. D) testator and two beneficiaries. Answer: C Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall

19) The initial part of the will is A) disposition of estate. B) appointment of trustee. C) testator identification. D) appointment of guardian. Answer: C Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 20) A notarial will is a formal type of will that is A) most commonly used in Quebec. B) the most common form across Canada. C) not valid in a number of provinces. D) written fully in the handwriting of the testator. Answer: A Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 21) In which province is the preferential share most generous to the surviving spouse? A) British Columbia B) Newfoundland C) Ontario D) Quebec Answer: A Diff: 2 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 22) If you die intestate, the court will appoint a(n) ________ to distribute your estate. A) personal representative B) administrator C) executor D) testator Answer: B Diff: 1 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall

23) Which of the following statements is correct with respect to how intestate laws apply to First Nations individuals? A) The administration of wills and intestacy laws are a federal matter for First Nations individuals. B) The surviving spouse or common law partner of a First Nations individual who dies intestate are entitled to the entire estate if the estate is worth less than $100 000. C) If the estate is worth more than $100 000, the preferential share for the surviving spouse or common law partner is $100 000 and the remainder of the estate is split based on the number of children. D) The administration of wills and intestacy laws are covered under section 84 of the Indian Act. Answer: A Diff: 2 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall 24) What happens if the beneficiary of reserve land is not a band member for the reserve on which the reserve land is associated? A) The beneficiary is entitled to the inheritance of reserve land as long as they are a First Nations individual. B) The beneficiary is entitled to the inheritance of reserve land. C) If the land is sold, the beneficiary must split the proceeds of the sale, after legal fees, with the band. D) The land must be either sold to a band member or the beneficiary must give up their interest in the reserve land. Answer: D Diff: 2 Type: MC Categories: Background on Wills Financial Type: Qualitative Skill Type: Recall Common Types of Wills 1) What type of will is written solely in the handwriting of the testator and does not require witness signatures? A) A notarial will B) A holograph will C) A temporary will D) An English form will Answer: B Diff: 2 Type: MC Categories: Common Types of Wills Financial Type: Qualitative Skill Type: Recall

Key Components of a Will 1) English form wills must be dated, signed, and witnessed and are the most common type of will in Canada. Answer: TRUE Diff: 2 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 2) As long as a holograph will is in the handwriting of the testator, it is valid in Canada. Answer: FALSE Diff: 1 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 3) With samples of valid wills being available on websites and in bookstores, it is not recommended that a person incur the additional expense of hiring a lawyer to write a will. Answer: FALSE Diff: 2 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 4) A preferential share claimed by a spouse may limit the amount granted to other beneficiaries. Answer: TRUE Diff: 2 Type: TF Categories: Background on Wills Financial Type: Qualitative Skill Type: Applied 5) Even a parent without significant net worth needs a will to appoint a guardian for their children. Answer: TRUE Diff: 1 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 6) The residue of an estate is the amount of assets you own before taxes. Answer: FALSE Diff: 2 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 7 Copyright © 2022 Pearson Canada Inc.

7) If you get married, your will is cancelled in some provinces but not in others. Answer: TRUE Diff: 2 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 8) If you are involved in a common-law relationship, it is the same as being married regarding preferential share entitlement. Answer: FALSE Diff: 2 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Applied 9) The document that describes funeral preferences and indicates where key financial records are kept is called the letter of last rites. Answer: FALSE Diff: 2 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 10) Minor changes to a will can be made with a simple document called a codicil. Answer: TRUE Diff: 1 Type: TF Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 11) The first clause in a will A) appoints the executor. B) identifies the beneficiaries. C) appoints the administrator. D) identifies the deceased. Answer: D Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall

12) If a person dies and two wills are discovered in the safety deposit box, A) there is a complicated legal process to determine the valid will. B) the will with the most recent date will be the valid will. C) the earliest dated will is valid. D) the courts will determine the valid will. Answer: B Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 13) If you die without a will, the court will appoint A) a grantor. B) an attorney. C) an administrator. D) a settlor. Answer: C Diff: 1 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 14) An executor may A) account for newborn children if not included as beneficiaries. B) adjust the preferential share. C) be a beneficiary of the will. D) determine the value for the assets. Answer: C Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 15) In choosing a guardian for your children, you should A) ensure he or she is also prepared to be the custodian. B) be sure to include this in the last letter of instruction. C) ensure that the person you select is willing to serve in this capacity. D) authorize this in a power of attorney. Answer: C Diff: 1 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall

16) If you wish to be cremated when you die, this request should be included in a A) durable power of attorney. B) letter of last instruction. C) codicil. D) letter of last rites. Answer: B Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 17) You are recently divorced and have relocated to another province, you should A) prepare a new letter of last instruction. B) prepare a codicil. C) prepare a new will. D) have your existing will notarized in the new province. Answer: C Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Applied 18) A document that specifies changes to an existing will is A) a letter of instruction. B) a codicil. C) an amendment. D) an addendum. Answer: B Diff: 1 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 19) You may want to execute a codicil to your existing will A) to add alternate executors. B) if you remarry. C) if you move to a different province. D) if you give birth to a child. Answer: A Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Applied

20) The purpose of probate is to ensure A) the will is valid to and for orderly distribution of assets. B) payment of liabilities are prioritized accurately. C) provinces collect the requisite probate fees. D) fair jurisprudence of all financial matters. Answer: A Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 21) Which of the following is the start of the probate process? A) Payment of claims against the estate B) The validation of the will C) Determination of legal heirs D) Filing the will and probate form with the court Answer: D Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 22) If no named executor is able to perform the appointed tasks, A) the surviving spouse would become the executor. B) the courts would appoint an administrator. C) the next of kin becomes the executor. D) the will becomes invalid. Answer: B Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 23) For which of the following events is a review of your will most essential? A) Moving to a new province B) Changing to a new job C) Getting engaged D) Getting a large salary bonus Answer: A Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Applied

24) What is the maximum number of bequests that can be made in a standard holographic will? A) 15 B) 50 C) 100 D) Unlimited Answer: D Diff: 1 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall 25) The liability clause in a will serves what purpose? A) It holds the executor legally liable for any mistakes made in the administration of the will. B) It absolves the executor of legal liability for any mistakes made in the administration of the will. C) It holds the executor legally liable for any mistakes made in the administration of the will on in the case of gross negligence. D) It absolves the executor of legal liability for any mistakes made in the administration of the will if the executor acted in good faith. Answer: D Diff: 2 Type: MC Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Recall

26) Indicate five personal situations where having a will and estate plan is most essential and two where having a will would not be as important. Answer: These answers will vary a lot, but important to think about: Critical need for a will: Time when intestacy laws would be most problematic Common law relationships Children out of marriage Second or more marriages Single parents Great wealth Assets in more than one jurisdiction Moving between provinces Divorce Marriage Not as high need for a will: Single person with no dependants If intestacy laws match with wishes No assets Diff: 3 Type: ES Categories: Key Components of a Will Financial Type: Qualitative Skill Type: Applied Probate Fees and Taxes at Death 1) Probate is the legal process that ensures orderly distribution of assets and guardians of children are appointed as the testator wished. Answer: TRUE Diff: 2 Type: TF Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 2) On death, the executor must sell all assets, thereby triggering taxes. Answer: FALSE Diff: 3 Type: TF Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Applied

3) There will be no tax on capital property held jointly with a surviving spouse. Answer: FALSE Diff: 2 Type: TF Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 4) The final tax return is normally filed within 12 months of the date of death, or on April 30th of the following year, whichever is later. Answer: FALSE Diff: 2 Type: TF Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Applied 5) RRSPs can be rolled over to certain beneficiaries without being subject to tax. Answer: TRUE Diff: 2 Type: TF Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 6) Deemed disposition rules require that the estate must sell the deceased's assets in order to pay the taxes owed by the estate. Answer: FALSE Diff: 2 Type: TF Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 7) One of the advantages of filing separate tax returns is that some of non-refundable tax credits can be used more than once. Answer: TRUE Diff: 2 Type: TF Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall

8) The value of the estate is calculated using A) cost. B) fair market value. C) cost plus inflation. D) the consumer price index. Answer: B Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 9) Which of the following is true regarding probate and probate fees? A) Each province charges a different amount for probate fees. B) All registered assets must be sold and deregistered. C) Taxation is based on the total value of all assets owned or controlled by the deceased at the moment of death. D) The value of your primary residence is never included in probate. Answer: A Diff: 3 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Applied 10) If your spouse has predeceased you, RRSPs A) can pass to registered charities with no immediate tax liability. B) are fully taxable. C) can pass to a dependent child with no immediate tax liability. D) are taxed as capital gains. Answer: C Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Applied 11) When a testator dies in December, the tax return must be filed A) three months after the estate is settled. B) by December 31st in the year after death. C) by June 30th of the following year. D) by April 30th of the following year. Answer: C Diff: 3 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Applied

12) An executor may be able to file more than one tax return for the deceased A) when the first return was not filed on time. B) when a business was sold just prior to death. C) if the estate received a life insurance policy. D) when rights or things are still owed to the deceased at death. Answer: D Diff: 3 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 13) For tax purposes, a deceased taxpayer is considered to have sold all of their assets on the date of their death. This is called the A) deemed disposition. B) disposal at death. C) liquidation principle. D) final settlement. Answer: A Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 14) Which of the following type of income can be filed on a "rights or things" tax return? A) The deceased taxpayer's share of business income from a partnership B) Income owed to the deceased taxpayer that was not paid by the time of death C) The deceased taxpayer's business income from a sole proprietorship D) The income received by the deceased taxpayer from a testamentary trust Answer: B Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 15) The purpose of opening a bank account for the estate is to A) deposit proceeds from liquidating estate assets. B) deposit donations received by the estate. C) fulfill the legal requirement to do so. D) allow the executor to transfer their fee into the account so executor fees are transparent to beneficiaries. Answer: A Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall

16) With respect to estate taxes, which of the following statements is correct? A) The estate tax rate is equal to the deceased's marginal tax rate in the year of death. B) The estate tax rate is equal to the deceased's marginal tax rate in the year prior to the year of death. C) There is no estate tax in Canada. D) The estate tax rate is equal to the deceased's average tax rate in the year of death. Answer: C Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 17) What is the difference between probate fees and tax payable on the final tax return? A) Probate fees vary from province to province, but tax payable is the same for deceased individuals who have the same income. B) Probate fees are much higher than the tax payable on estate assets. C) The probate fee rates are lower than marginal tax rates. D) Probate fees represent the amount owing based on estate values, whereas tax payable represents the amount owing based on deemed disposition rules. Answer: D Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 18) Which of the following assets is subject to capital gains tax upon death? A) The principal residence of the deceased B) A rental property where the the fair market value is greater than the purchase price C) A registered retirement account that is eligible to be rolled over to a spouse D) A rental property where the the fair market value is less than the purchase price Answer: B Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 19) An optional tax return may be filed for all of the following items except A) rights or things. B) business income. C) inter vivos trust. D) testamentary trust. Answer: C Diff: 2 Type: MC Categories: Probate Fees and Taxes at Death Financial Type: Qualitative Skill Type: Recall 17 Copyright © 2022 Pearson Canada Inc.

Estate Planning Strategies 1) Estate planning commonly involves trusts, gifts, and charitable contributions for the purpose of avoiding taxes. Answer: TRUE Diff: 1 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 2) A trust involves the transfer of assets to a third party who manages these assets for a beneficiary. Answer: TRUE Diff: 2 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 3) A testamentary trust comes into force upon death. Answer: TRUE Diff: 2 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 4) In many cases, the executor and the trustee is the same individual. Answer: TRUE Diff: 1 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 5) A living will is a health care directive for individuals to specify their preferences if they become mentally or physically disabled. Answer: TRUE Diff: 2 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 6) Assets that are owned as a joint tenancy with rights of survivorship (JTWROS) avoid probate fees. Answer: TRUE Diff: 2 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 18 Copyright © 2022 Pearson Canada Inc.

7) Unless a dependent child is physically or mentally impaired, the taxes owing on RRSPs can be spread out by purchasing a fixed-term annuity for the dependent child for a period of 18 minus the dependent child's age. Answer: TRUE Diff: 2 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 8) Contributions to charitable organizations in the year of death are treated the same as contributions made in previous years. Answer: FALSE Diff: 2 Type: TF Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 9) A type of trust that is created by a will is called a(n) A) alter ego trust. B) testamentary trust. C) beneficial trust. D) inter vivos trust. Answer: B Diff: 2 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 10) The person who establishes and funds a trust is the A) trustee. B) administrator. C) settlor. D) testator. Answer: C Diff: 2 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall

11) Which kind of trust allows assets to transfer into it on a tax deferred basis? A) Alter ego trust B) Testamentary trust C) Charitable trust D) Inter vivos trust Answer: A Diff: 2 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 12) Inter vivos trusts A) are formed to protect assets for a dependent child. B) may not be used for fixed assets such as a cottage. C) are continually and actively managed by the settlor. D) pay taxes on earnings at the highest marginal rate. Answer: D Diff: 3 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 13) Inter vivos trusts usually A) form part of your assets upon death and need to be probated. B) are challenged through the court system when made public at death. C) result in arguments about who owns the assets upon death. D) distribute all income to beneficiaries annually to avoid high tax rates. Answer: D Diff: 3 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall 14) In the year of death, contributions to registered charitable organizations through your will A) can be made to a family member. B) are restricted to 75 percent of gross income. C) can be 100 percent of net income and that of the preceding year. D) is capped at $75 000. Answer: C Diff: 2 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall

15) If Mary is not sure her primary beneficiary will survive her, she should A) name a contingent beneficiary. B) name joint beneficiaries. C) change her beneficiary. D) name her estate as beneficiary. Answer: A Diff: 2 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Applied 16) If John is going to have his first child, which of the following should he do for his estate planning? A) Add a codicil to his will B) Review his will C) Update his will D) Review his power of attorney Answer: C Diff: 2 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Applied 17) Which of th e following is an advantage of owning assets as a joint tenancy with rights of survivorship (JTWROS)? A) There is no loss of control since any decisions regarding the property can be made independently of the other owners. B) The death of one joint owner results in an asset being transferred directly to the surviving joint owner. C) The transfer of property into a joint tenancy arrangement will not trigger immediate capital gains taxes because deemed disposition rules will not apply. D) Creditors and/or the spouse of either joint owner will not be able to make a claim to the assets in a joint tenancy arrangement. Answer: B Diff: 2 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Recall

18) Francisco donated $100 000 to a local charity in 2020. Later that year, he passed away. Francisco's net income on his final tax return was $80 000. Will Francisco's estate be able to claim the entire $100 000 against his net income? A) No, since only 75 percent of charitable contributions may be claimed against net income, his estate can only claim $75 000. B) Yes, in the year of death, 100 percent of charitable contributions may be claimed against net income, so his estate can claim the entire $100 000. C) Yes, his estate can claim the entire $100 000 because he also had net income of $10 000 in 2019. D) No, although 100 percent of charitable contributions may be claimed against net income in the year of death, his estate can only claim $80 000. Answer: D Diff: 3 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Applied 19) Name and explain the different features of three types of trusts and give circumstance where they would be applicable. Answer: Inter Vivos (revocable and non-revocable), Alter Ego and Testamentary are possible answers. Testamentary trusts: Could be used for transferring assets to children but keeping the isolated from marriage assets. Does not avoid probate fees. Inter vivos trusts: Keep assets out of estate, avoids probate fees, and direct to special purposes. Taxed at highest rate, but direct your assets while still alive. Alter Ego or Joint partner trust: Settlor must be over age 65 and assets avoid probate fees and deemed disposition at settlor's death. Could be used in late second marriages to allocate income to a new partner, but transfer assets eventually to children. Diff: 3 Type: ES Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Applied Other Aspects of Estate Planning 1) A living will is a simple legal document in which individuals specify their preferences if they become mentally or physically disabled. Answer: TRUE Diff: 1 Type: TF Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall

2) Enduring powers of attorney must only be granted to people of utmost trustworthiness because the power of attorney continues even if the grantor becomes incapacitated due to mental illness. Answer: TRUE Diff: 2 Type: TF Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Applied 3) Granting a durable power of attorney gives the authorized individual power to make decisions about your medical treatment, rather than leaving it to the health care professionals. Answer: TRUE Diff: 2 Type: TF Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 4) A general power of attorney document terminates automatically only if the grantor dies. Answer: FALSE Diff: 1 Type: TF Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 5) Which of the following is not a good reason to have a will? A) To distribute your assets as you wish B) To appoint an attorney to make specific health care decisions for you C) To reduce the costs being imposed on the estate D) To appoint a legal guardian for children Answer: B Diff: 2 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 6) When considering holding assets as joint ownership with rights of survivorship for estate planning purposes, it is important to understand A) that capital gains taxes will be deferred on this transaction until the survivor passes. B) how the spousal roll-over rules will impact capital gains taxation. C) the implications of giving up your decision-making power over the asset. D) that naming a child as a joint owner of your principal residence will trigger capital gains taxes. Answer: C Diff: 3 Type: MC Categories: Estate Planning Strategies Financial Type: Qualitative Skill Type: Applied 23 Copyright © 2022 Pearson Canada Inc.

7) A legal document in which individuals specify their preferences in the event that they become mentally or physically disabled is called a(n) A) enduring power of attorney. B) living will. C) durable power of attorney. D) letter of wishes. Answer: B Diff: 2 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 8) A legal document granting a person the power to make specific decisions for you in the event that you become incapacitated is called a(n) A) durable power of attorney. B) enduring power of attorney. C) living will. D) general power of attorney. Answer: B Diff: 2 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 9) A limited power of attorney for finances for a specific time while you are travelling outside the country can give someone you designate the power to make which of the following decisions? A) Sell stock in your portfolio B) Make a new power of attorney for you C) Decide which assets should be sold if you pass away before returning D) Decide which care home you can afford if you become incapacitated during the trip Answer: A Diff: 2 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Applied

10) A power of attorney for health care can give someone you designate the power to make which of the following decisions? A) Pay your bills while you are in the hospital B) Decide on funeral arrangements C) Make decisions for you about specific treatment options D) Distribute assets while you are in a nursing home Answer: C Diff: 3 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Applied 11) A legal document granting a person the power to make specific health care decisions for you in the event that you become incapacitated is called a(n) A) enduring power of attorney for health care. B) general health care power of attorney. C) durable power of attorney for health care. D) health care directive. Answer: C Diff: 2 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 12) A general power of attorney A) enables the attorney to make a new will for you. B) terminates automatically when assets run out. C) does not provide immediate authority until someone becomes ill. D) terminates if the attorney dies. Answer: D Diff: 2 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 13) A non-continuing power of attorney with a specified task A) becomes enforceable as a will if the grantor dies. B) becomes transferable if the attorney is incapacitated. C) expires when the task or event has been completed. D) has all-encompassing power if the grantor becomes incapacitated. Answer: C Diff: 1 Type: MC Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall

14) Discuss the characteristics and expertise you would look for in the person you want to appoint as your executor or attorney. Answer: Students should demonstrate that they understand the importance of appointing financially astute individuals to handle complex personal affairs that can be diverse. This requires personal experience, certain levels of education, skill in managing financial assets and trustworthiness. Executor: Skills, trustworthiness to manage and dispose of assets at reasonable values, complete all tax returns etc., minimize taxes where possible. This could more easily be done by a professional with limited personal relationship to the testator. Attorney: For enduring and durable powers of attorney, utmost personal connection and trustworthiness are essential as well as competence. Diff: 3 Type: ES Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Recall 15) Explain the differences between and the importance of using continuing and non-continuing forms of a power of attorney in estate planning. Answer: Non-continuing powers of attorney have an expiry date, which may depend on several important events. As an example, you may grant powers to a relative while on extended rehabilitation in hospital that expires when you return home, or powers to manage specific transactions while you are travelling out of country. Continuing or enduring power of attorney. Students should demonstrate the importance of the grantor assigning such all-encompassing powers to those of utmost trustworthiness. Diff: 3 Type: ES Categories: Other Aspects of Estate Planning Financial Type: Qualitative Skill Type: Applied

Personal Finance, Canadian Edition, 5th edition by Jeff Madura and Hardeep Singh Gill TEST BANK.

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TEST BANK for Personal Finance, Canadian Edition, 5th edition by Jeff Madura and Hardeep Singh Gill.