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Seg Mock Exam 4 Questions and
Answers 100% Solved
Barb is currently working at KatCorp and has just received a job offer from another company. She is worried that changing jobs will mean losing her RPP. She has been at KatCorp for 20 years and she does not want to lose her retirement savings. When she meets with her advisor, he tells Barb that she has several options.
Which of the following is not an option for Barb?
a) Leave her RPP with KatCorp, allowing it to continue to grow
b) Move her KatCorp RPP to her new employer's RPP
c) Transfer her KatCorp RPP to her RRSP account at the bank
d) Use the value of her RPP to purchase a deferred life annuity โโ(correct) Transfer her
KatCorp RPP to her RRSP account at the bank
Rationale:
Barb cannot transfer her RPP to an RRSP account. The pension value of an RPP must be transferred to a locked-in account and no withdrawals can be made until the specified retirement age. (Refer to Section 4.5)
Monty is planning to buy a new car in three years. The car is expected to cost $40,000. How much money must he invest today, if he can get a return of 5%, compounded annually?
a) $40,
b) $38,
c) $34,
d) $34,554 โโ(correct) $34,
Rationale:
The risks associated with investing in equity investments are market risk and industry risk. (Refer to Section 1.3.7.5)
Travis is almost 65 and will be retiring very soon. He is a member of his company's Defined Contribution Pension Plan (DCPP). He has been looking at pension vehicles and has made up his mind to go for an annuity. His children are well settled and he does not have to leave them an inheritance. He estimates his and his wife's life expectancy at 20 years.
Which annuity will give Travis the highest monthly income and last as long as he expects to live?
a) Joint and last survivor life annuity-60%
b) Joint and last survivor life annuity-100%
c) Joint and last survivor annuity with a guaranteed period of 20 years-100%
d) Joint and last survivor life annuity with a guaranteed period of 10 years-100% โโ(wrong)
Joint and last survivor annuity with a guaranteed period of 20 years-100%
Rationale:
Since Travis does not need to leave behind an inheritance, he does not require an annuity with a guaranteed period. A guaranteed period will reduce the monthly payments. A joint and last survivor life annuity pays the annuitant (Travis) income for his lifetime and the selected percentage to the surviving spouse. A 60% joint and last survivor annuity will pay more monthly income than a 100% joint and last survivor annuity. (Refer to Section 3.5.2)
London Pharma Inc. has a group plan for its employees and their human resources manager, Laura has gone on vacation. Laura's substitute, Amy does not know for which of the following situations London Pharma is responsible:
Julie needs to start receiving her employee benefits
Karl in shipping has missed a couple of contributions to the plan
Emma in payroll is unsure of which investment choices to make in her DCPP
Gill is going on a vacation and would like to obtain travel insurance
Aman would like to withdraw $2,000 from his TFSA
Processing withdrawal requests
The administrator is not responsible for investment choices in a DCPP or providing additional benefits to employees that are not included in their plan. (Refer to Section 1.3.11.1, 1.3.11.2)
Louis is 28 years old and has just earned a bonus of $30,000 from his employer for the sales targets that he achieved. He is planning to use most of this amount for a down payment for the first home that he intends to buy in two years. According to his latest Notice of Assessment from the Canada Revenue Agency (CRA), he has a total RRSP contribution limit of $35,000.
Which of these suggestions is the most appropriate for Louis?
a) Do not deposit any of this money required for a down payment as it would be taxed on withdrawal.
b) Deposit the money into an RRSP and get the tax reduction right now. Pay the tax on withdrawal after two years.
c) Deposit the $30,000 into an RRSP and get the tax reduction right now. Make a withdrawal of $25,000 under the Home Buyers' Plan for the down payment.
d) Do not deposit the money into an RRSP for a short term like two years. It is meant for retirement funds. โโ(correct) Deposit the $30,000 into an RRSP and get the tax reduction right
now. Make a withdrawal of $25,000 under the Home Buyers' Plan for the down payment.
Rationale:
Buyers' Plan allows a taxpayer to make a special withdrawal of up to $25,000 to make a down payment for a home, provided the taxpayer qualifies as a first-time home buyer. The withdrawal is not taxed but needs to be repaid in 15 equal instalments. (Refer to Section 4.7.1)
Mario's agent is reviewing his Notice of Assessment to see what Mario's Registered Retirement Savings Plan (RRSP) contribution room will be for the year. The agent sees that there is a pension adjustment (PA) of $5,000 that reduces Mario's RRSP contribution room.
What does the PA amount indicate to Mario's agent?
a) $24,
b) $36,
c) $43,
d) $73,140 โโ(correct) $43,
Rationale:
Jacob's expenses at retirement are $60,000 x (1 +.02)ยนยบ = $73,140. If he reduces his expenses by 40%, his expenses in the first year of retirement will be $43,884. (Refer to Section 1.1.3)
Cathy invested in a non-registered segregated fund account with an investment of $100,000. The fair market value of her account is $160,000 today. Over the years, she has had the following transactions in her account:
Principal
Growth
Total
Deposit
Deposit
Cumulative allocations received to date
What is the adjusted cost base of Cathy's account?
a) $100,
b) $120,
c) $125,
d) $128,000 โโ(correct) $128,
Rationale:
The adjusted cost base of an account is the sum of the principal deposited minus the principal withdrawn plus allocations. Based on this, the ACB of the account is $100,000 + $10,000 + $20,000 - $5,000 - $3,000 + $6,000 = $128,000. (Refer to Section 2.1.7.0)
Arnold is a self-employed truck driver with 20 years of experience. He is looking to invest his life savings in segregated funds for the creditor protection and the ability to designate specific beneficiaries on the segregated fund contract. In his line of work, Arnold knows accidents can happen and he would like to ensure that his family will not receive less than what he invested if he were to die unexpectedly. He has been investing for the last two decades and has seen a few market cycles during that time. Arnold's investment goals are long-term and he is not worried about short-term fluctuations. He keeps a close eye on fees and wants an investment option that is not too cost-prohibitive.
What type of segregated fund guarantees are best Arnold?
What type of group savings plan does Sandra have with her employer?
a) Defined Benefit Pension Plan (DBPP)
b) Group Registered Retirement Savings Plan (GRRSP)
c) Group Tax-Free Savings Account (TFSA)
d) Deferred Profit Sharing Plan (DPSP) โโ(wrong) Defined Benefit Pension Plan (DBPP)
Rationale:
The fact that Sandra's taxable income is higher than her annual salary points to the fact that her employer's contributions to the group plan are considered additional salary. This eliminates the DCPP and DPSP options. As well, the fact that there is a deduction related to the group plan points to the GRRSP since TFSA contributions are not tax-deductible. Based on Sandra's tax return, the agent can assess that the employer contributed the $2,500 resulting in the extra
taxable income, and that Sandra also contributed $2,500, resulting in the $5,000 deduction. (Refer to Section 8.2.2.5)
Donald has been a member of the Defined Contribution Pension Plan (DCPP) plan with his current employer for the last 12 years. He recently accepted a job offer with a new employer, who also offers a DCPP. Donald is unsure of his options regarding the $60,000 he has accumulated in his current DCPP.
Which is not an option available to Donald?
a) Leave the money in the current DCPP
b) Transfer the money to the new employer's DCPP
c) Transfer the money to a Locked-In Retirement Account (LIRA)
c) Segregated fund with a front-end load option
d) Segregated fund with a deferred sales charge option โโ(correct) Segregated fund with a
front-end load option
Rationale:
With a front-end load option, the investor pays the sales charges up front, and there are no deductions made when the proceeds are paid out to the beneficiary for both mutual funds and segregated fund investments. However, only segregated funds offer a downside guarantee through the maturity and death benefit guarantees. (Refer to Section 2.1.1.1)
Michael is a 70-year-old widower who wants to use his Registered Retirement Savings Plan (RRSP) savings to purchase a life annuity contract with a 20-year guarantee period. If he dies before the end of the guarantee period, he wants the annuity payments to be paid to his only daughter. If his daughter predeceases him, Michael would like the annuity payments to go to his favourite charity.
In Michael's case, what is not necessary to complete the life annuity application?
a) Naming a primary beneficiary
b) Michael's social insurance number
c) Confirming Michael's identification
d) An executor โโ(correct) Confirming Michael's identification
Rationale:
Michael's life annuity contract will be registered because it is funded by an RRSP, so the identification requirements do not apply. The life annuity has a 20-year guarantee period, so it is important that Michael name a beneficiary. Because Michael wants the annuity to go to a charitable organization if his primary beneficiary predeceases him, it is important to name a contingent beneficiary. (Refer to Section 7.2.1.3)
Micah is a vegetarian and has a passion for helping animals. He has even started his own company to support this cause. During his estate planning, he has made it clear that he wants his
