Question 1

At what life stage does it become important to concentrate on reducing personal debt to zero?

1. Early career
2. Family and mid-career
3. Prime earning
4. Early retirement

Question 2

Gilles and Catherine, both recent university graduates, are building their first financial plan. Their most important goal is to purchase a house in 4 years.Their plan calls for a 50% saving ratio to accumulate the $150,000 down payment by investing in term deposits.Which element of developing SMART goals have they not met?

1. The goal is not measurable.
2. The goal is not time bound.
3. The goal is not realistic.
4. The goal lacks an action plan.

Question 3

Ricardo is aware that he should save as much as possible early in his career while his personal responsibilities are minimal.Therefore he has adopted an aggressive savings plan - put aside $1,500 in his TFSA at the beginning of each month for a year.(He has never contributed to a TFSA and has sufficient contribution room.)Ricardo's savings are expected to earn 2% per annum, compounded semi-annually and he will make his first contribution 6 months from today.How much will he have in his TFSA in 2 years' time if no further contributions are made?

1. $18,195
2. $18,377
3. $18,407
4. $18,502

Question 4

Chlo is planning for her 15 year-old daughter's university education.She estimates that 1 year of university would cost $15,000 in today's dollars, but will rise with the rate of inflation of 2% year over year.How much would Chlo need to have accumulated by the time her daughter starts university at the age of 19 provided she attends university for 3 years and will receive funds at the beginning of each year?Assume an investment rate of 3.6%, compounded monthly.

1. $41,896
2. $43,775
3. $47,932
4. $49,689

Question 5

Anton borrows $25,000 to purchase a car.His loan will be amortized over 5 years at a rate of 4.8%, compounded monthly.How much of the loan will he have paid off after 2 years?

1. $1,872
2. $9,351
3. $11,223
4. $15,649

Question 6

You are given the following and told that the individual's debt-to-asset ratio is 0.9What is the individual's net worth?

Item

$ Value

Monthly credit card payment

1,000

Household assets

38,000

Disposable income

42,000

Investment assets

17,000

Monthly expenses

2,200

Liquid assets

5,500

Monthly car payments

$630

1. $6,050
2. $40,940
3. $54,450
4. $60,500Question 7

Deidre's gross salary is $75,000 and deductions at source reduce her paycheck by 30%.Her savings ratio is 5%.What are her annual expenses?

1. $52,500
2. $49,875
3. $32,694
4. $2,625

Question 8

Malcolm manages his cash flow very carefully.His surpluses have grown over the years, and being conservative he invests them in GICs.Given this behaviour, which of his ratios should improve?

1. Savings ratio
2. Debt-to-assets ratio
3. Liquidity ratio
4. Current ratio

1. I, II and III
2. II, III and IV
3. I and IV
4. I, II, III and IV

Question 9

Mustafa received the following in 2019:

Gross salary

$100,000

Capital gain upon the sale of stocks

$5,500

Inheritance from his grandmother

$10,000

Dividends received from the Royal Bank of Canada

$2,000

Foreign interest, after 30% US withholding tax

$350

Withdrawal from his TFSA

$15,000

What was Mustafa's total income in 2019 for tax purposes?

1. $108,760
2. $105,965
3. $106,010
4. $132,850Question 10

Which is not included in an Educational Assistance Payment, and why?

1. Subscriber contributions, because they are not taxable
2. Canada Education Savings Grant, because it is returned to the subscriber
3. Canada Learning Bond, but it is never taxable
4. Investment income, because it is taxable

Question 11

Refer to the combined 2019 Federal and Quebec personal income taxes rates in Table A.During 2019, Sami earned $92,000 from his position as an analyst at AGF Mutual Funds.He contributed $7,000 to a Defined Contributed Pension Plan (matched by his employer), $2,000 to his TFSA, $3,000 to an RESP and made charitable donations of $1,000.What was Sami's average tax rate in 2019?

1. 31.00%
2. 31.50%
3. 32.00%
4. 32.50%

Question 12

Refer to CRA Schedule 9 for 2019:Donations and Gifts at https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/5000-s9/5000-s9-19e.pdf

In 2019, Nada made eligible charitable donations of $50,000.Nada's taxable income for 2019 was $300,000.What was her federal charitable donations tax credit?

1. $16,500
2. $16,464
3. $12,963
4. $7,500

Question 13

Terry only made the minimum required payment on his credit card in May.Thus he started the next 30-day billing period (June 1) with a balance of $720.Terry used his credit card to pay for repairs on his car on June 10 for $1,500, and sent in another payment of $1,000 on June 25.His annual interest rate is 23%, compounded daily.How much interest will he be charged for the month of June?

1. $361.00
2. $207.15
3. $43.73
4. $29.68

Question 14

Lynne and Glen plan to purchase their first home in a year's time.They have been saving $400 a month for the last 3 years and investing that money in GICs in their TFSA at a rate of 2%, compounded semi-annually. They also plan to draw down the maximum from both of their RRSPs under the Home Buyers' Plan.They estimate acquisition costs will amount to $15,000.If they want to avoid mortgage insurance costs, what is the most they could pay for a house?(Hint:Confirm the maximum drawdown from the HBP in 2019.)

1. $279,190
2. $306,774
3. $349,130
4. $402,923

Question 15

Vince purchased a condo in Brossard on Montreal's South Shore near Dix30 for $550,000.What would be his land transfer tax (taxe de bienvenue)?

1. $9,750
2. $7,000
3. $6,750
4. $3,250

Section II: 2 Mini-Cases (10 marks)

Mini-Case A (4 marks)

Jennifer is a single woman, aged 32.She works for Spotify as a human resources manager for the Quebec region, earning $102,000 a year.Her company offers its employees a Group RRSP and matches her personal contributions to the plan of $5,000 a year.Jennifer also pays $500 in professional dues to the Human Resources Professional Association.

In 2019, Jennifer contributed the maximum to Employment Insurance (EI), the Quebec Pension Plan (QPP) and the Quebec Provincial Parental Insurance Program (PPIP).Spotify also offers a medical plan, the premium of which is $980 for a single individual.Jennifer incurred $3,000 of unreimbursed medical expenses in 2019.

Refer to the 2019 Federal Income Tax and Benefit Guide and Income Taxand Benefit Return for residents of Quebec at:

https://www.canada.ca/content/dam/cra-arc/formspubs/pub/5000-g/5000-g-c-19e.pdfhttps://www.canada.ca/content/dam/cra-arc/formspubs/pbg/5005-r/5005-r-19e.pdf

Part 1 (1 mark)

What was Jennifer's taxable income for 2019?

Calculation of Jennifer's taxable income

Part 2 (3 marks - mark for each non-refundable tax credit)

Calculate each of Jennifer's Federal non-refundable tax credit amounts. Then, calculate her total non-refundable tax credits.

Calculation of each of Jennifer's non-refundable tax credit amounts and total tax credit

Mini-Case B (6 marks)

The Simpsons, owners of a spa on the island of Montreal, have been hard-hit by the pandemic.Before they were forced to close their spa, their take home income, after taxes but before living expenses, was $7,000 a month.The Simpsons spent all of their take-home cash flow and even more, by borrowing on a line of credit (LOC).The day their spa was closed the balance on their LOC was $8,520.Normally they use the LOC to clear the balance on their several credit cards each month.Terms of the LOC include a repayment of 3% of principal every month plus interest charged at a rate of 0.5% per month.

Three years ago the Simpsons took out a $532,000 mortgage to purchase a home in Beaconsfield.Payments are monthly at a rate of 3.6%, compounded semi-annually. The original amortization period was 20 years and they have made 34 payments to date.

The Simpson's mortgagor has offered them the possibility of suspending payments for the next 4 months.Nevertheless, they will still owe the interest they would have paid on each payment.Furthermore, the future value of the unpaid interest after 4 months will mean that they will have to pay interest on the outstanding interest should they take up this offer.

Part 1 (1 mark)

Excluding the balance on their LOC, what minimum emergency fund should the Simpsons have held to meet unforeseen events?What type of investment would be suitable for such a fund?

Calculation of Minimum Emergency Fund

Suitable Investment

Part 2 (1 mark)

How much would the couple have to pay on the LOC for the month following closure of their spa?What impact would not making the payment have on their credit rating?Please explain.

LOC Payment Calculation

Impact of Non-Payment

Part 3 (1 mark)

What is the monthly payment on the Simpson's mortgage?What is the balance after 34 months?Round to the nearest dollar.

Calculation of Mortgage Payment and Balance after 34 Months (rounded)

Part 4 (2 marks)

Draw up the Simpson's mortgage amortization table for the next four months (i.e. for payments 35-38).Their monthly mortgage rate is 0.2978%.Round to the nearest dollar.

Month

$ Beg. Bal.

$ Pmt.

$ Interest

$ Principal

$ End. Bal.

35

36

37

38

Part 5 (1 mark)

How much interest will the Simpsons owe at the end of the 4-month period?(Mortgage payments are made at the end of the month.)Round to the nearest dollar.Remember, they will be obliged to pay interest on their interest.

If they are given the choice of adding this to their mortgage balance or paying it immediately in cash, what would you recommend, and why?

Calculation of Total Interest Owed at the end of 4 months

Repay or add to the mortgage balance?

The End