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Exam CIFC Topic 1 Question 157 Discussion
Actual exam question for IFSE Institute's CIFC exam
Question #: 157
Topic #: 1
Question #: 157
Topic #: 1
Danny is a Dealing Representative for Everbright Investments. He met with his client Adele, who has
$1,000,000 to invest. During their meeting Danny determines that Adele has a high-risk profile. In addition, he learns that she has an excellent understanding of equities and how volatile they can be. Danny is considering recommending growth funds specifically, and making a recommendation from the following investment options:
Based on the information provided, which mutual fund should Danny recommend?
$1,000,000 to invest. During their meeting Danny determines that Adele has a high-risk profile. In addition, he learns that she has an excellent understanding of equities and how volatile they can be. Danny is considering recommending growth funds specifically, and making a recommendation from the following investment options:
Based on the information provided, which mutual fund should Danny recommend?
Suggested Answer: D Vote an answer
Explanation
Adele has a high-risk profile and an excellent understanding of equities. Therefore, it would be appropriate for Danny to recommend growth funds. However, since Adele has $1,000,000 to invest, it would be prudent to diversify her investments and invest equally in all 3 funds. This way, she can benefit from the exposure to different regions and sectors, and reduce the impact of market fluctuations on her portfolio. Based on the table, all 3 funds have the same 5-year annualized returns net of MER, which is 15%. However, they have different MERs and Sharpe ratios. The MER is the fee charged by the fund manager for managing the fund, and the Sharpe ratio is a measure of risk-adjusted return. A lower MER means a lower cost for the investor, and a higher Sharpe ratio means a higher return per unit of risk. Therefore, investing equally in all 3 funds would allow Adele to achieve a balanced trade-off between cost and performance. References:
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 4: Mutual Funds, Section 4.2: Types of Mutual Funds, page 4-6
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section
5.5: Risk-Return Trade-Offs, page 5-14
* Sharpe Ratio Definition - Investopedia
Adele has a high-risk profile and an excellent understanding of equities. Therefore, it would be appropriate for Danny to recommend growth funds. However, since Adele has $1,000,000 to invest, it would be prudent to diversify her investments and invest equally in all 3 funds. This way, she can benefit from the exposure to different regions and sectors, and reduce the impact of market fluctuations on her portfolio. Based on the table, all 3 funds have the same 5-year annualized returns net of MER, which is 15%. However, they have different MERs and Sharpe ratios. The MER is the fee charged by the fund manager for managing the fund, and the Sharpe ratio is a measure of risk-adjusted return. A lower MER means a lower cost for the investor, and a higher Sharpe ratio means a higher return per unit of risk. Therefore, investing equally in all 3 funds would allow Adele to achieve a balanced trade-off between cost and performance. References:
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 4: Mutual Funds, Section 4.2: Types of Mutual Funds, page 4-6
* Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section
5.5: Risk-Return Trade-Offs, page 5-14
* Sharpe Ratio Definition - Investopedia
by Roberta at Jan 02, 2024, 09:39 AM
Here are all the actual test exam dumps for IT exams. Most people prepare for the actual exams with our test dumps to pass their exams. So it's critical to choose and actual test pdf to succeed.
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