CIFC Risk Assessment and Financial Planning 2

Question 1

A 58-year-old client plans to retire in 7 years and relies heavily on investment income. Which risk is MOST relevant to address in their financial plan?

Accepted Answer

Longevity risk

Answer

Longevity risk — outliving one's assets — is especially critical for clients nearing retirement who depend on investment income.

Question 2

Under KYC obligations in Canada, which document is used to record a client's investment objectives, risk tolerance, and financial situation?

Accepted Answer

New Account Application Form (NAAF)

Answer

The New Account Application Form (NAAF) captures all required KYC information including risk tolerance and investment objectives.

Question 3

A portfolio's standard deviation is 12% and the expected return is 8%. What does this indicate?

Accepted Answer

Volatility of returns is higher than the expected return

Answer

A standard deviation of 12% exceeding the 8% expected return indicates high return volatility relative to the expected gain.

Question 4

Which of the following best describes 'capacity for loss' in risk assessment?

Accepted Answer

The financial ability to absorb investment losses without affecting lifestyle

Answer

Capacity for loss refers to the objective financial ability to sustain losses without material impact on the client's financial goals or lifestyle.

Question 5

An investor holds a Canadian equity fund and a Canadian bond fund. Correlation between the two is +0.2. What is the primary benefit of combining them?

Accepted Answer

Reduced portfolio volatility through low positive correlation

Answer

A low positive correlation of +0.2 means the assets don't move in lockstep, reducing overall portfolio volatility through diversification.

(CIFC) Canadian Investment Funds Course Practice Test

(CIFC) Canadian Investment Funds Course Practice Test

CIFC Risk Assessment and Financial Planning 2