HLLQP - SFA 02 FC - Segregated Funds Exam Questions and Answers with complete solutions | Graded A+

Describe the investment quality of a high-yield bond - very low quality. Analogy: Investing in a high-yield bond(junk bond) is a lot like betting on a longshot at the horse races. Your horse is unlikely to win, and you will most likely lose all of your money. However, if your horse somehow wins, you stand to make a huge profit. The same logic holds with junk bonds. An investor may take a chance on such a bond if he believes that the issuer's fortunes will turn around and the bond will fullfill its financial obligations(i.e., pay interest and pay the face value back at maturity) What does "switching" mean with reference to segregated funds? - Switching refers to taking money from one fund type and using it to buy another fund with the same insurer. Most funds will allow the investor to make a certain number of switches without incurring a specific switch fee. With that being said, if the client switches from a no-load fun to one that charges a front- end load, a fee would then apply. What is a balanced growth fund? - A balanced fund that will have a greater proportion invested in equities. Contrasted with a balanced income fund, which is a balanced fund that will have a greater proportion invested in fixed-income products. To what extent is an insurer concerned about he client's health when purchasing a segregated fund that offers death benefit guarantees? - When insurers make maturity and death guarantees, they are doing so based on their confidence in the way fund will be managed. Essentially, they are saying, "We are very confident that over the long term, this fund will have a positive return."The assumption is that 10 years (or the life-insured's lifespan) should be sufficient time for the fund to make up any short-term losses it may realize.