EMT Practice Test

1. Question Content...

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Question1: Last year Peter's earned income from employment was $50,000.
Last year, after receiving a $2 per share in dividends from 500 shares in ABC Inc., a publicly-traded Canadian corporation, he sold his shares. The sale resulted in a capital gain of $15,000.

Based on the tax rates mentioned above, what is Peter's net federal tax liability for the year? (Round to 2 decimal places).

Question2: Which of the following is a conflict of interest that should be AVOIDED?

Question3: Quinton, a Dealing Representative, meets with his client Banji. Banji's Know Your Client (KYC) indicates that her risk profile is "medium''. Banji currently has $35,000 in her account which is invested 50% in the Middleton Balanced Fund and 50% in the Hector Growth Fund. She tells Quinton that she would like to contribute an additional $10,000 to purchase the Prospect Labour-Sponsored Fund. Which of the following statements about Banji's proposed transaction is CORRECT?

Question4: Which of the following is typical for a normal yield curve?

Question5: Dakota is a Dealing Representative with Harvest Wealth Inc., a mutual fund dealer. Dakota starts a marketing campaign to contact prospective new clients and increase sales with existing clients. Which of the following CORRECTLY describes activities that Dakota can engage in under her marketing campaign?

Question6: While assessing the suitability of an investment recommendation as a Dealing Representative, which statement applies to the "Client's Interest First" standard?

Question7: Your clients, Philip and Helen, have a disabled son, Alex, age 22. They want to set up a registered disability savings plan (RDSP) for Alex and have asked you for some information.
Which statement is TRUE?

Question8: Which of the following best describes implied needs of your clients?

Question9: Your client Charlie is thinking about making a large investment into the Sentinel Canadian Equity Fund on December 15. The ex-dividend date for the mutual fund is December 20. What advice would you give Charlie to avoid the tax trap?

Question10: On January 2nd of this year Evan purchased 500 preferred shares of Ingram Ltd. The preferred shares have a par value of $25 per share and a quarterly dividend of $0.98 per share. They also give Evan the option to sell the shares back to Ingram at par value any time from now until September 1st two years from now. What type of preferred shares does Evan own?

Question11: Which of the following applies to a mutual fund trust?

Question12: Greg, one of your clients, has been advised by a friend to invest in open-end mutual funds. He is not sure about the differences between open and closed-end funds.
What would you tell Greg about open-end funds?

Question13: Ai Fen has recently become registered to sell mutual funds with Acadian Eastern Financial, a mutual fund dealer. Ai Fen determined that with her background of being a Chartered Financial Analyst, she can help people understand the nature of investing more easily than others in her field.
Which registration category will need to be prominently noted on Ai Fen's business card to comply with the
"holding out rule"?

Question14: Which of the following statements about capital gains distributions from mutual fund trusts is correct?

Question15: Jonathan is a Dealing Representative who has just finished an appointment with his new client, Shirley.
Jonathan has concluded that Shirley has a low-risk profile but wants to establish additional savings of
$500,000. During their discussion, Shirley emphasizes she wants investments that are also tax efficient.
Jonathan learned that currently Shirley has no registered retirement savings plan (RRSP) and tax-free savings account (TFSA) contribution room due to using those opportunities by investmenting elsewhere.
What variable is a PRIMARY consideration for Jonathan when making an investment recommendation?

Question16: Ellen and her only son Jeff live on the family farm with her father George. Jeff is five years old and Ellen has decided that it is time to start saving for Jeff's post-secondary education. She has called you to ask about registered education savings plans (RESPs).
Which of the following statements is TRUE?

Question17: Based on your discussions with your client Sierra, you believe an asset allocation of 30% fixed income and
70% equities will help her achieve her long-term goals. What type of asset allocation strategy are you implementing?

Question18: Jabir recently joined Prosper Wealth Inc. and is looking forward to being a Dealing Representative for the firm. Which of the following statements CORRECTLY describe when Jabir will be eligible to open new client accounts and sell investments?

Question19: Ken is a member of his employer's Defined Benefit Pension Plan (DBPP). Which of the following statements about Ken's plan is CORRECT?

Question20: Stan, a portfolio manager, is looking at two steel companies as potential investments. Truesteel Inc. has a current ratio of 2:1 while Strongco Ltd. has a current ratio of 0.8:1.
What could this information indicate?

Question21: Khuyen is a Dealing Representative for Stark Contrast Investments. Her dealer has relationships with 20 different mutual fund families. This gave her the flexibility to sell two different types of funds from two different fund families to her client, Bao. $5,000 was invested in the Blue Moon Global Balanced fund and an additional $5,000 was invested in the Orange Sun Asset Allocation fund. Khuyen has been reviewing the performance of both funds and has determined that Bao would be better off being fully invested in the Blue Moon Global Balance fund. Bao had previously signed a Limited Authorization Form (LAF) for Khuyen, so she goes ahead and does not worry about consulting with Bao before making the change.
What type of activity has Khuyen performed?

Question22: Jasmine received an inheritance from her grandmother of $10,000. She wants to invest her money wisely. She has seen in the news that a particular energy company is doing very well and has good prospects. She has also seen how volatile its share price has been in the last year. She knows the risks of the resource sector and wants to invest but is not comfortable with so much volatility. Which of the following mutual fund benefits would address her concern?

Question23: Sandra presently participates in her employer-sponsored defined contribution pension plan (DCPP). As contributions continue to be made into her plan, what can she expect?

Question24: Sachin owns units of a long-term bond fund. He has heard that the Bank of Canada is likely to make it more expensive to borrow money. He is worried that the value of his investment is going to drop. What sort of investing risk is Sachin experiencing?

Question25: Malik has been saving money for retirement but he is worried about the impact inflation may have on the value of his savings. He wants to purchase a bond that will give him a steady stream of income that is greater than the inflation rate. He has found a bond issued by a major airline with a market price of $9,200, a par value of $10,000, and a coupon rate of 6.75%. What is the current yield of this bond?

Question26: What is the national self-regulatory organization (SRO) for investment dealers?

Question27: Gershon is a Dealing Representative and he opens a new account for his client, Isaac. Gershon collects the necessary information from Isaac in order to designate the Trusted Contact Person (TCP) for Isaac's account.
Which of the following statements about Isaac's TCP is CORRECT?

Question28: Which of the following statements best describes dollar-cost averaging?

Question29: Francis wants to redeem his US Asset Allocation Fund as he needs the money for a down payment for a home purchase. The current proceeds from the redemption are USD $27,859, and the current CAD/USD exchange rate is 0.7353.
How much will Francis receive in Canadian dollars when he redeems the Funds? Please round your answer to the nearest dollar.

Question30: Saheed is a retiree who is considering splitting his pension income with his wife, Minu.
Which of the following outcomes may occur if he shares his pension benefits?

Question31: Gregory is a conservative investor who wants to hold a portfolio of equity securities that would fall less than the overall market in a downturn.
Which of the following portfolios would you advise Gregory to invest in?

Question32: Which among the following BEST describes a company's income statement?

Question33: Pacari is a Dealing Representative with Cavalry Investments, a mutual fund dealer. Pacari's client, Darsha, is a long-time customer and an elderly widow. Darsha depended on her husband, for financial decisions before he passed. Pacari has also noticed that Darsha's capacity seems to be declining over the years. Luckily, with Pacari's help, Darsha has been managing her finances well. However, Darsha's daughter has been getting involved recently and has even tried to enter trades without Darsha's authorization. Pacari is particularly concerned about the last transaction for Darsha's account: a very large redemption. Pacari fears that Darsha has become a victim of financial exploitation and he raises his concerns with his dealer Cavalry. Which of the following statements about how Cavalry may proceed is CORRECT?

Question34: Danica is looking for a mutual fund to hold in her non-registered account that provides a regular stream of income with potential for capital growth. She is having difficulty distinguishing between bond funds and dividend funds. Which of the following statements is TRUE?

Question35: Which of the following could be a passively managed fund?

Question36: Your client, Helen, just received her non-registered account statement which states that one of her mutual funds made an interest income distribution during the year. She asks you how she will be taxed on the distribution. What do you tell Helen?

Question37: With respect to the tax treatment of dividends received from a taxable Canadian corporation, which of the following statements is CORRECT?

Question38: In which of the following situations would the client mobility exemption apply?

Question39: Louis is the portfolio manager for Quattro Fund. The mandate of the mutual fund is to invest in a combination of cash, fixed income, and equity securities; however, Louis has the ability to adjust the portfolio according to market conditions. If Louis feels that interest rates will fall, he could invest the whole portfolio in equities. If he feels the market is too high, he could take profits and sit totally in cash. What type of mutual fund is Quattro Fund?

Question40: Which of the following statements is TRUE about the movement of business cycles in the Canadian economy?

Question41: Pierre buys a call option on a stock. What is the implication of this transaction?

Question42: Lior is considering an investment that gains exposure to companies that trade on the Toronto Stock Exchange (TSX). He is not sure what the differences are between a Canadian equity fund and a Canadian dividend fund.
What would you tell him?

Question43: What information does Fund Facts provide to potential investors?

Question44: Davis invested in a tactical asset allocation fund in his non-registered investment account. Distributions from the mutual fund are paid directly to Davis and not reinvested. Assuming a federal marginal tax rate of 26%, dividend gross-up rate of 38% and federal dividend tax credit rate of 15%, which type of distribution would result in the lowest amount of tax payable?

Question45: Justin and Yvonne both open a Registered Education Savings Plan (RESP) for their daughter Grace. They plan to regularly contribute $1,000 per year until Grace reaches the age of 17.
Which of the following statements relating to RESP is CORRECT?

Question46: David had $10,000 in his investment account with Dynamic Investments, a mutual funds dealer. On June 28, David wants to buy 500 units in ABC Canadian Dividend Fund that has a Net Asset Value Per Unit (NAVPU) of $14.10. His friend Robert suggests that he may get a better price if he used the strategy of dollar-cost averaging. David then instructs his Dealing Representative to place a purchase order for 100 units on the first of every month starting July 1st for the next 5 months.
The orders are executed at the following NAVPUs.
July 01, $14.00
Aug. 01, $14.50
Sep. 01, $15.00
Oct. 01, $14.25
Nov. 01, $16.50
Did David get a better purchase price following the dollar-cost averaging strategy compared to making a lump-sum purchase of 500 shares on Jun 28, 20xx?

Question47: Catarina is a Dealing Representative for Ethical Financial which represents 20 different mutual fund families.
Darlene is a fund manager from one of those mutual fund families and wants to send a gift card to Catarina as a symbol of appreciation. Ethical Financial's policies and procedures manual (PPM) require that Catarina decline the gift.
What method of addressing conflict of interest is being used by Ethical Financial?

Question48: Sarah and Kyle are a married couple. They are both 34 years of age and work as teachers. Their combined annual income is $130,000. They are able to save $800 each month. They own a home worth
$340,000 with a $120,000 mortgage. Since they work for the same employer, they have the same defined benefit pension plan. Other than a tax-free savings account (TFSA) in Kyle's name with $5,000, they do not have any other assets.
They are avid sailors and want to save towards a purchase of a sailboat. For the type of sailboat they want, they estimate it should cost around $65,000. They want you to recommend an investment for their monthly savings to help them achieve their goal faster.
What question should you ask them next?

Question49: Nelson is a Dealing Representative with True Wealth Advisors Inc., a mutual fund dealer. Nelson follows proper procedures related to his firm's Relationship Disclosure Information (RDI). Which of the following CORRECTLY describes how Nelson is permitted to evidence that he satisfied his RDI obligation?

Question50: Hamid, the portfolio manager of the Trabant Canadian Equity Fund is deciding on some new investments. He has identified a retirement residence company as well as a discount clothing retailer that both seem to have good prospects and appear undervalued. What investment approach is Hamid using?

Question51: Patrick is a portfolio manager for the HyperTally Growth Fund. It has generated an annualized rate of return of
10% this past year. However, with the anticipation of very high inflation to soon occur, there is also an expectation of higher interest rates. Patrick is concerned about the future returns of existing stocks within the fund. What may Patrick do to protect against the market value of the fund dropping?

Question52: Yesterday, Mariana who is new to investing and purchased mutual funds for the very first time. She shared her excitement with her good friend, Julius. However, after Julius learned about her investment, he admits that he had a bad experience with mutual fund investing and that he lost money. Mariana regrets not talking to Julius prior to making her decision. Her feelings of enthusiasm have changed to fear. She is wondering if it is too late to change her mind and cancel her purchase order.
Which statement regarding the right of withdrawal is CORRECT?

Question53: Barend is a Dealing Representative with Planvest Group Inc., a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA). Which of the following CORRECTLY describes Barend's obligation for conflicts of interest?

Question54: During the calendar year, Firmansyah received a $1,800 eligible dividend from a large Canadian bank and a
$US dollar (USD) dividend of $882.02 from a foreign-based corporation. The USD/CAD exchange rates is
1.3605.
Firmansyah's federal marginal tax bracket is 29%. The enhanced dividend gross-up rate is 38% and the federal dividend tax credit rate for eligible dividends is 15%.
What federal tax liability will be result from his investment income?

Question55: A client has $950,000 in his RRSP account and $550,000 in his non-registered account held in nominee name with Tradewell Mutual Funds.
In the event of his dealer, Tradewell Mutual Funds declaring insolvency, what is the total amount the client be eligible to receive from the Mutual Fund Dealers Association of Canada Investor Protection Corporation (IPC)?

Question56: Darryl has a diversified investment portfolio of mutual funds in a non-registered account with Investwell Mutual Funds, a mutual fund dealer. Darryl's diversified portfolio is composed of 3 mutual funds. Each mutual fund is currently worth about $100,000. The ABC Canadian Equity Fund has a total return of 6%, the DEF Bond Fund has a total return of 8% and GHI Global Equity Fund has a total return of 10%. Darryl wants to make an in-kind contribution to his registered retirement savings plan (RRSP) account. He has unused RRSP contribution room of $60,000.
From a tax-efficient viewpoint, which funds contribute in-kind to his RRSP account?

Question57: Which of the following statement about Exchange Traded Funds (ETFs) is TRUE?

Question58: One of your clients, Fernando, is approaching 71 years of age and has a few questions regarding life income funds (LIFs).
Which of the following statements about LIFs is TRUE?

Question59: Pippa purchased a 15-year bond with a face value of $5,000 and a 7% coupon rate at the time of issuance. The bond is due to mature later this year. The general interest rate climate remained stable for the first 13 years of the bond's term. However, especially over the past 18 months, both inflation and general interest rates have increased more than expected.
What is Pippa likely to experience from her bond?

Question60: Which of the following Dealing Representatives has CORRECTLY fulfilled their suitability obligation?

Question61: On January 3, John invests $500 in the Blue Sky U.S. Equity Fund. On July 1 of the same year, he invests another $500 into the same mutual fund. Information about the net asset value per unit (NAVPU) at the time of each transaction is provided below. Given this information, what will be the value of John's investment on December 31 of this year (please ignore transaction costs and distributions)?

Question62: Which of the following statements are CORRECT about labour sponsored investment funds (LSIFs)?

Question63: Which of the following characteristics about mortgage mutual funds is CORRECT?

Question64: Sylvia decided to use the savings from her bank account to purchase a 5-year bond. The face value of the bond is $10,000, the market price is $9,230 and the coupon rate is 7%.
What is the current yield on the bond? Round to 2 decimal places.

Question65: Karen's know your client (KYC) profile corresponds to someone who has a long time horizon, is comfortable with risk and volatility, and is primarily interested in growth. She watches the daily movements of the Toronto Stock Exchange (TSX) and wants a mutual fund that will closely match what she sees.
What kind of mutual fund would be BEST for her?

Question66: Your client, Kimberly has investments in both registered and non-registered plans. Which of the following investment strategies is best suited for Kimberly from a tax perspective?

Question67: Which statement regarding the underwriting process and over-the-counter (OTC) markets is CORRECT?

Question68: What statement CORRECTLY describes a key difference between bonds and debentures?

Question69: Jasmine purchases a 1-year, $10,000 face value strip bond for $9,600. At maturity, when Jasmine receives
$10,000, which of the following statements is CORRECT?

Question70: Pierre wants to discuss the merits of a specific mutual fund with his Dealing Representative, Simone. There are no trailer fees associated with this fund. Simone is familiar with the mutual fund that Pierre is referring to, which is not offered by her dealer. They schedule an appointment to further discuss his investment portfolio.
Which behaviour from Simone is ethical?

Question71: Your clients, Jessica and Ken, want to buy a house next year. You recommend a money market fund. How do you think a money market fund will help Jessica and Ken reach their goal?

Question72: Xian-Li believes she is a sophisticated investor. She has constructed her own portfolio and has had some success. She does not believe in studying a company's details such as earnings, expenses, or assets. She is more concerned with patterns in a company's stock price over time. She believes patterns form and can be used to predict future movements in the market.
How does Xian-Li evaluate the companies in her portfolio?

Question73: Charlotte has received proceeds from a deceased family member's estate. Charlotte decides to visit Malik, who's a Dealing Representative at her bank. She tells Malik, she does not know much about trading ETFs, but she wants to invest in ETFs. Charlotte says she feels fortunate to have this money and that she's not worried about losing it because she never planned on having any of it.
What element of the Know Your Client (KYC) information has Malik been able to learn?

Question74: Xerxes, 45 years old, is a successful architect, having an annual income of $185,000. He has around $10,000 in his non-registered account, which he is looking to invest in a tax-efficient manner.
From the following options, which would be the most tax-efficient?

Question75: What purpose does it serve for non-money market mutual funds to hold money market instruments?

Question76: Your client Jerry's asset mix is deviating from the original target asset mix because the stock market has had strong performance. Equities are now over-weighted in Jerry's account. The original target asset mix is still valid since Jerry's situation has not changed. He is invested in several bond and equity mutual funds. What should you do?

Question77: Sean purchases 500 units of Penn Canadian Equity Fund when the net asset value per unit (NAVPU) is
$16.70. On December 15, the mutual fund's NAVPU is $21. On December 16, the mutual fund declares a distribution of $1.25 per unit. Sean's distribution is immediately reinvested and he purchases additional units of the mutual fund.
Which of the following statements about the effect of the distribution is correct?

Question78: Faruq is a Dealing Representative with Smart Planning Group, a mutual fund dealer. Faruq meets with his new client, Taline, and learns that she lives on a low, fixed income.
Taline tells Faruq that she wants to maximize her investment returns as high as possible to make up the difference. Taline also indicates that she cannot afford large investment losses because her income is low.
Which of the following CORRECTLY describes how Faruq should assess Taline's risk profile?

Question79: Beatrice is looking for comprehensive information regarding the analysis of financial statements and fund management expenses as it relates to her current mutual fund investment.
Which document would provide the information she is looking for?

Question80: Last year at age 70, Gregory opened a registered retirement income fund (RRIF). Recently, Gregory unexpectedly received a large cash gift and presently does not need to depend on any payments from his RRIF.
He contacts his financial advisor Eric for guidance.
Which of the following statements by his financial advisor would be CORRECT?