SEGREGATED FUNDS ANNUITIES EVALUATION TEST
ANSWERS AND QUESTIONS SET A+
✔✔How is the Asset Mix determined?
LLQP - SFA VL 14 - ✔✔Rule of 100
100 - Age = Recommended % in Equities
Example
Client Age 20
=100 - 20
= 80% Equities
Note:
It is just a guideline
✔✔Give investment types under
1. Cash & Equivalents
2. Fixed Income
3. Equities
LLQP - SFA VL 14 - ✔✔1. Cash Equivalents:
- GICs
- T-Bills
- Canada Savings Bonds
- Canada Prmium Bonds
2. Fix Income:
- Marketable bonds which could be issured by
corporate or government
- preferred shares
,3. Equities:
- Common Shares
✔✔What is Guaranteed Investment Certificates (GICs)?
LLQP - SFA VL 15 - ✔✔- Offered by deposit taking institutions (e.g. Banks, Trust
Companies)
- Guaranteed by the issuer and Canada Deposit Insurance Corporations also known as
CDIC (in certain cases)
- Lending the issuer money in exchange for interest over a certain period of time. For
example, 5- year GIC @ 2% per year.
- Traditionally interest rate on GICs is fixed however there are some new products
where interest rate could fluctuate.
- GICs can be issued on redeemable (upon investor's request) or non-redeemable
basis. If it is redeemable, the issuer could redeem it prior to the normal maturity date.
Some banks have created a hybrid GICs where redeemable only certain circumstances
such as medical issue.
✔✔Canada Deposit Insurance Corporation (CDIC)
LLQP - SFA VL 15 - ✔✔1. - Only covers true deposits (Bank accounts, GICs at
Banks or trust companies.
- Mutual fund investments are not covered by CDIC.
2. $100,000 coverage includes principal and interest.
- If you are making an deposit in GICs, you only
have coverage if the length of GIC is 5 years or
less.
- $100,000 per bank, not per branch. So even if you
spread your deposits among many branchs at the
same bank, you will still have total of 100,000
coverage.
3. Only CDN Dollar deposits are covered. Even if you had a U.S. bank account at the
Canadian bank, that deposit would not be covered.
https://www.youtube.com/watch?v=Vg0mJloFPxo
https://www.youtube.com/watch?v=GOO3TMbAOFk
✔✔What is Treasury Bills (T-Bills)?
, LLQP - SFA VL 16 - ✔✔short-term investment vehicles issued by the federal
government.
- Minister of Fiannce auctions T-Bills every 2 weeks throug the Bank of Canada to
industry participants such as banks and trust companies.
- Participants can break the T-Bills they received at the auction into smaller pieces. You
can buy one for $1,000 or even $1,000,000.
- Initially issued with terms of 3 months, 6 months, and 1 year. You can also buy a T-bill
with a much shorter term because they trade in the marketplace. E.g. 3-Month T-bill will
eventually become a 10-Day T-Bill.
✔✔Why is Treasury Bills (T-Bills) safe?
LLQP - SFA VL 16 - ✔✔1. Issued by the federal government (very low chance of
default). If the government needs more capital, they can simply raise taxes.
2. Very short-term investment ( one year or less)
The Treasury Bills are so safe The 90-Day T-Bill rate is referred to as the "Risk Free
Rate of Return"
✔✔How T-Bill works?
LLQP - SFA VL 16 - ✔✔You buy T-bills at a discount, and they mature at Face Value.
For example, you can buy $1,000 treasure bills for $950 that would mature at $1,000.
Basically, you pay $950 today and when it matters you receive $1000 with the
difference being your interest.
✔✔What is Canada Savings Bonds (CSBS)
LLQP - SFA VL 17 - ✔✔Canada Savings Bonds (CSBS) are NOT Marketable Bonds.
- Marketable bond is one that can be traded among investors much like a stock. You
can sell to other investors at the current market price if you want to liquidate.
Cannot do this with a CSB as it is not a a marketable bond. With CSBS, investors really
only have two options:
1. Hold to maturity
2. Redeem with Issuer
With CSBS, Under no circumstances, you can sell or trade to another investors
they are two types of Canada Savings Bonds(CSBs): Regular Canada Savings Bonds,
and Canada Premium Bonds(CPB).
ANSWERS AND QUESTIONS SET A+
✔✔How is the Asset Mix determined?
LLQP - SFA VL 14 - ✔✔Rule of 100
100 - Age = Recommended % in Equities
Example
Client Age 20
=100 - 20
= 80% Equities
Note:
It is just a guideline
✔✔Give investment types under
1. Cash & Equivalents
2. Fixed Income
3. Equities
LLQP - SFA VL 14 - ✔✔1. Cash Equivalents:
- GICs
- T-Bills
- Canada Savings Bonds
- Canada Prmium Bonds
2. Fix Income:
- Marketable bonds which could be issured by
corporate or government
- preferred shares
,3. Equities:
- Common Shares
✔✔What is Guaranteed Investment Certificates (GICs)?
LLQP - SFA VL 15 - ✔✔- Offered by deposit taking institutions (e.g. Banks, Trust
Companies)
- Guaranteed by the issuer and Canada Deposit Insurance Corporations also known as
CDIC (in certain cases)
- Lending the issuer money in exchange for interest over a certain period of time. For
example, 5- year GIC @ 2% per year.
- Traditionally interest rate on GICs is fixed however there are some new products
where interest rate could fluctuate.
- GICs can be issued on redeemable (upon investor's request) or non-redeemable
basis. If it is redeemable, the issuer could redeem it prior to the normal maturity date.
Some banks have created a hybrid GICs where redeemable only certain circumstances
such as medical issue.
✔✔Canada Deposit Insurance Corporation (CDIC)
LLQP - SFA VL 15 - ✔✔1. - Only covers true deposits (Bank accounts, GICs at
Banks or trust companies.
- Mutual fund investments are not covered by CDIC.
2. $100,000 coverage includes principal and interest.
- If you are making an deposit in GICs, you only
have coverage if the length of GIC is 5 years or
less.
- $100,000 per bank, not per branch. So even if you
spread your deposits among many branchs at the
same bank, you will still have total of 100,000
coverage.
3. Only CDN Dollar deposits are covered. Even if you had a U.S. bank account at the
Canadian bank, that deposit would not be covered.
https://www.youtube.com/watch?v=Vg0mJloFPxo
https://www.youtube.com/watch?v=GOO3TMbAOFk
✔✔What is Treasury Bills (T-Bills)?
, LLQP - SFA VL 16 - ✔✔short-term investment vehicles issued by the federal
government.
- Minister of Fiannce auctions T-Bills every 2 weeks throug the Bank of Canada to
industry participants such as banks and trust companies.
- Participants can break the T-Bills they received at the auction into smaller pieces. You
can buy one for $1,000 or even $1,000,000.
- Initially issued with terms of 3 months, 6 months, and 1 year. You can also buy a T-bill
with a much shorter term because they trade in the marketplace. E.g. 3-Month T-bill will
eventually become a 10-Day T-Bill.
✔✔Why is Treasury Bills (T-Bills) safe?
LLQP - SFA VL 16 - ✔✔1. Issued by the federal government (very low chance of
default). If the government needs more capital, they can simply raise taxes.
2. Very short-term investment ( one year or less)
The Treasury Bills are so safe The 90-Day T-Bill rate is referred to as the "Risk Free
Rate of Return"
✔✔How T-Bill works?
LLQP - SFA VL 16 - ✔✔You buy T-bills at a discount, and they mature at Face Value.
For example, you can buy $1,000 treasure bills for $950 that would mature at $1,000.
Basically, you pay $950 today and when it matters you receive $1000 with the
difference being your interest.
✔✔What is Canada Savings Bonds (CSBS)
LLQP - SFA VL 17 - ✔✔Canada Savings Bonds (CSBS) are NOT Marketable Bonds.
- Marketable bond is one that can be traded among investors much like a stock. You
can sell to other investors at the current market price if you want to liquidate.
Cannot do this with a CSB as it is not a a marketable bond. With CSBS, investors really
only have two options:
1. Hold to maturity
2. Redeem with Issuer
With CSBS, Under no circumstances, you can sell or trade to another investors
they are two types of Canada Savings Bonds(CSBs): Regular Canada Savings Bonds,
and Canada Premium Bonds(CPB).
