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CSI CSC2 Exam Syllabus Topics:
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CSI Canadian Securities Course Exam2 Sample Questions (Q90-Q95):
NEW QUESTION # 90
What is the reason for an individual to use an estate freeze?
Answer: B
Explanation:
An estate freeze is a strategy used to minimize future tax liability by freezing the value of an individual's assets at their current level and transferring future growth to others (e.g., family members). This helps lock in the current value for taxation purposes while passing on potential growth to the next generation without incurring immediate taxes.
* Key Benefits of an Estate Freeze:
* Ensures that future appreciation in asset value is taxed in the hands of beneficiaries rather than the original owner, typically at lower tax rates.
* Facilitates succession planning by transferring control of assets to heirs.
* Limits tax exposure while maintaining flexibility in estate planning.
* Why Other Options Are Incorrect:
* A: An estate freeze does not eliminate probate fees, though it may reduce taxable estate value.
* B: Asset price volatility is unrelated to the purpose of an estate freeze.
* C: While asset control may change, this is not the primary reason for an estate freeze.
:
CSC Volume 2, Chapter 24: Estate Planning and Tax Strategies.
NEW QUESTION # 91
What bond should an advisor recommend to someone who wants to hold bonds and maximize potential cap- tai gams when interest rates are expected to fall?
Answer: A
Explanation:
Along-term bond with a low couponwill maximize capital gains when interest rates fall. Here's why:
* Long-term bondsare more sensitive to interest rate changes due to their longer duration, which amplifies the price movement.
* Low coupon bondsare more affected by changes in interest rates compared to high coupon bonds because more of their value comes from the principal repayment rather than periodic interest payments.
Other options:
* Short-term bonds: Have lower duration and less sensitivity to interest rate changes, so they do not maximize capital gains.
* High coupon bonds: Are less sensitive to interest rate changes because of their higher periodic cash flows.
References:
* Volume 1, Chapter 7:Fixed-Income Securities: Pricing and Trading, section on "Impact of Maturity and Coupon on Bond Prices" explains the relationship between interest rate changes, bond duration, and price sensitivity.
NEW QUESTION # 92
The principle of retraction in retractable preferred shares is identical to what other security?
Answer: A
Explanation:
The principle of retraction in retractable preferred shares allows the shareholder to force the issuing company to redeem the shares for cash at a predetermined price on or after a specified date. This feature is identical toretractable bonds and debentures, which give the bondholder the option to require the issuer to repay the principal before maturity.
* A. Callable preferred shares: Callability benefits the issuer, not the holder, and is not similar to retraction.
* B. Retractable common shares: Such securities are not common in the market and are not comparable to retractable preferred shares.
* C. Redeemable preferred shares: Redemption is at the issuer's discretion, unlike retraction, which is at the holder's discretion.
NEW QUESTION # 93
What is one advantage of implementing indexing investing style?
Answer: D
Explanation:
* Indexing is an investment strategy that tracks a benchmark index and is simple for investors to understand. This ease of understanding is one of its primary advantages.
* Option A: Indexing does not provide preferential tax treatment for derivative-based income.
* Option C: While low-cost, indexing does not offer an opportunity to outperform the market-it aims to match the market's performance.
* Option D: Indexing is typically suited for long-term investing due to its emphasis on broad market exposure and passive management.
Canadian Securities Course Volume 2, Portfolio Management Section.
NEW QUESTION # 94
Which fiscal policy measure was designed to encourage individuals to save?
Answer: D
Explanation:
The Tax-Free Savings Account (TFSA) is a fiscal policy measure introduced by the Canadian government to encourage individuals to save. Unlike other savings mechanisms, the TFSA provides a unique tax advantage:
any income earned within the account, whether from interest, dividends, or capital gains, is completely tax- free. This structure incentivizes saving by maximizing the growth potential of the funds invested without the burden of tax erosion.
* Nature of the TFSA
* Introduced in 2009, the TFSA allows Canadians aged 18 or older to contribute a specific annual limit (indexed to inflation) to the account. Contributions are made with after-tax dollars, meaning withdrawals, including investment income, are not taxed.
* Comparison to Other Measures in the Options:
* First Home Savings Account (FHSA): This is a targeted saving vehicle to assist first-time homebuyers and is more restrictive in its purpose.
* Capital Gain Inclusion Rate: Although it reduces taxable income by allowing only a portion of capital gains to be taxed, it doesn't offer the complete tax-exempt growth and withdrawal benefits of a TFSA.
* Dividend Tax Credit: This offsets taxes on eligible dividends but is designed to encourage investment in Canadian corporations rather than promote individual saving per se.
* Economic ImpactBy encouraging Canadians to save, the TFSA bolsters household financial security and indirectly supports the broader economy by increasing available investment capital.
* Volume 2, Chapter 24: Canadian Taxation - Section on Tax-Free Savings Accounts.
* Volume 2, Chapter 13: Macroeconomic Analysis - Fiscal Policy Measures.
Detailed Explanation:References:
NEW QUESTION # 95
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