Which newspaper article would be likely to result in foreign capital moving out of a country?
Correct Answer: B
New taxes on foreign direct investment increase the cost of investing in a country, making it less attractive for foreign capital and likely causing capital outflows. The feedback from the document explains: "Capital moves in and out of a country based on a variety of risk factors. Increased trade barriers or increased taxes on foreign investments would typically reduce the attractiveness of a country for foreign investment. (a), (c), and (d) would all indicate positive trends in a risk factor analysis." Reference: Chapter 2 - Overview of the Canadian Financial MarketplaceLearning Domain: An Introduction to the Mutual Funds Marketplace
Question 127
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?
Correct Answer: A
A Registered Education Savings Plan (RESP) is a tax-advantaged savings plan that helps parents and family members save for a child's post-secondary education. The government also contributes to the plan through the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), depending on the family income and the amount of contributions. However, there are some rules and limits that apply to RESP contributions and government grants. One of them is the lifetime contribution limit, which is the maximum amount that can be contributed to an RESP for a beneficiary from all sources. The lifetime contribution limit is $50,000 per beneficiary, regardless of how many RESPs are opened for them or who contributes to them. Therefore, statement A is correct. Justin and Yvonne may contribute a combined lifetime maximum of $50,000 for Grace to their RESP. The other statements are incorrect for the following reasons: Statement B: RESPs are not tax-free investment plans. They are tax-deferred plans, meaning that the contributions are made with after-tax dollars and the investment income earned in the plan is not taxed until it is withdrawn as an educational assistance payment (EAP) for the beneficiary. The EAPs are taxed in the hands of the beneficiary, who usually has little or no income and pays little or no tax. Statement C: There is no annual contribution limit for RESP contributions. However, there is an annual limit for the CESG, which is 20% of the first $2,500 contributed per beneficiary per year, up to a maximum of $500 per year. The CESG also has a lifetime limit of $7,200 per beneficiary. Statement D: Contributions made to an RESP are not eligible for a tax deduction in the year they are contributed. They are made with after-tax dollars and do not reduce the contributor's taxable income. Canadian Investment Funds Course, Unit 9, Section 9.1
Question 128
If the Consumer Price Index (CPI) was 140.6 last year and 146.9 this year, what was the inflation rate over the year?
Correct Answer: C
The inflation rate is calculated by subtracting the previous year's CPI from the current year's CPI, dividing by the previous year's CPI, and multiplying by 100. In this case: (146.9 - 140.6) / 140.6 = 6.3 / 140.6 # 0.0448 or 4.48%. The feedback from the document confirms: "To calculate the rate of inflation over a period of time one must subtract the CPI at the beginning of the period from the CPI at the end of the period and then divide the result by the CPI at the beginning of the period. In this example, the solution can be derived as follows: (146.9 - 140.6) / 140.6." Reference: Chapter 3 - Economic PrinciplesLearning Domain: An Introduction to the Mutual Funds Marketplace
Question 129
What is the current yield on a $5,000 Government of Canada bond paying a 6% coupon and trading at a price of $102 (rounding to the nearest hundredth)?
Correct Answer: D
Question 130
Michael had invested in several mutual funds, most of which have appreciated in value. He is not sure if he needs to report the gain as capital gains when he files his income tax return. What would you tell Michael?
Correct Answer: A
Michael, capital gains are the profits you make when you sell an asset that has increased in value. For example, if you bought a mutual fund for $1,000 and sold it later for $1,500, you have a capital gain of $500. Capital gains are taxed only when they are realized, which means when you actually sell the asset and receive the proceeds. You do not have to report any unrealized capital gains, which are the potential profits you would make if you sold the asset at its current market value. Capital gains are taxed on all types of mutual funds, not just equity funds. However, the amount of capital gains you have to report may vary depending on the type of fund and how often it distributes its gains to investors. Capital gains are not tax-free, but they are taxed at a lower rate than other types of income. You only have to pay tax on 50% of your net capital gains, which is the total capital gains minus the total capital losses in a year. For more information on how to calculate and report your capital gains, you can refer to the Canada Revenue Agency website1 or consult a tax professional. 1: Canadian Investment Funds Course, Chapter 9: Taxation of Investment Income2
