Segregated Funds and Annuities Exam Questions and Answers (Graded A+)

Investing - ANSWER-using money to make money Principal - ANSWER-initial capital/seed sometimes ACB (adjusted cost base) Fair market value - ANSWER-current value of a property Return, gain, growth, interest - ANSWER-profit above the principal Liquidity - ANSWER-quick, easy, conversion to cash, without affecting value Volatility - ANSWER-fluctuation in investment value Leveraging - ANSWER-borrowing money to invest a "multiplier" of risk and return Inflation - ANSWER-increased cost of living lowering the value of money over time Rate of return Formula - ANSWER-Gain / Principal Interest Formula - ANSWER-Principal * % rate of return Real rate of return Formula - ANSWER-nominal rate - inflation rate Future Value Formula - ANSWER-PV * (1 + interest rate)^n Present Value Formula - ANSWER-FV / (1 + interest rate)^n Diversification - ANSWER-contains many different types/areas of investment decrease overall risk Investment objectives - ANSWER-- purpose - financial goal - need for guarantee - time horizon - tax preference / tax advantage Short term investment - ANSWER-less than 3 years - can take low risk Medium term Investment - ANSWER-3-10 years Long term Investment - ANSWER-10+ years - can take high risk Asset Classes - ANSWER-equity income cash Equity - ANSWER-- stocks - generally high volatility, high opportunity Income - ANSWER-- fixed income, bonds - generally low volatility, low opportunity Cash - ANSWER-- money market, treasury bills - no volatility, very low opportunity Types of Investments - ANSWER-segregated funds annuities stocks