CSI AFP-Exam-1 - Applied Financial Planning Certification Exam 1 (AFP)

A high-income parent gives $80,000 to a 12-year-old child to invest in a non-registered bond fund. The parent expects the child to report the annual interest income. What rule should the planner identify?

• A. The child must contribute the amount to an RRSP.
• B. Attribution rules may tax the interest income back to the parent.
• C. Attribution rules apply only when property is transferred to a spouse.
• D. The income is always taxed to the child because the account is in the child's name.

Tony, a financial planner, is meeting with his client, Howard, age 42. Howard would like to retire in 15 years.
His retirement goal is to have an annual gross income of $30,000 (in today's dollars). He is currently contributing $2,400 each year to his RRSP which is currently worth $275,000. Assume an average annual inflation rate of 3%, rate of return of 4% for the registered assets and a life expectancy to age 90. What will Tony determine as Howard's current surplus/shortfall at retirement?

• A. Surplus of $16,801.
• B. Shortfall of $16,801.
• C. Shortfall of $20,671.
• D. Surplus of $20,671.

Suzy, age 45, is meeting with a financial planner as she has recently inherited $1.25 million from her late aunt. Suzy has poor spending habits and would like to review options that would safeguard and help her receive stable cash flows. She does not have a lot of experience investing and would like to avoid making day- to-day investment decisions. Which type of investment account is most appropriate for Suzy?

• A. Straight life annuity.
• B. Multi-mandate managed.
• C. Discretionary fee-based.
• D. Separately managed.

Rosa has just learned that her daughter Marissa, age 23, does not intend to return to university. She has been saving for her daughter's education since Marissa was 10 and is concerned there will be a significant tax liability. How should Rosa's financial planner advise her to utilize the funds when she redeems the RESP in order to offset the tax liability?

• A. Deposit the full balance into her own RRSP.
• B. Deposit the full balance into her daughter's RRSP.
• C. Deposit the growth into her own RRSP.
• D. Deposit the growth into her daughter's RRSP.

The Andersons, a young couple, meet with their financial planner to review estate-planning opportunities.
They recently had a third child and are looking for the most cost-effective strategy to put in place during their working years to increase their estate value and reduce the tax burden at death for the benefit of their children.
What should the financial planner recommend?

• A. They should each have permanent life insurance plans in place.
• B. Set up a joint savings account with automatic monthly contributions.
• C. Update beneficiary designation to the estate on their registered plans.
• D. Put in place a term survivorship life insurance policy.