Gobeil's Collection of 1,000 Questions™
Sample Questions

Answer is (D). Michelle will lose her Survivor's Allowance from the OAS program.

(Concepts) The Survivor's Pension is part of the CPP, and does not terminate when the recipient remarries. The Orphan's Benefit is also payable under the CPP, and it is payable to the child of a deceased contributor until age 18, or until age 25 if the child goes to school full-time. The Orphan's Benefit is not terminated by marriage of the child, as long as that child continues to meet the other requirements of the program.

The Survivor's Allowance is part of the OAS program, and the qualifications for the Survivor's Allowance are similar to those for the Allowance. The Survivor's Allowance is payable until age 65, when it is replaced with standard OAS and GIS benefits, or it can terminate before that time if the recipient dies or remarries.

The entitlement to GIS benefits is based on age and income, not on marital status. However, in the case of a couple, the GIS is reduced by $1 for every $2 of the couple's base income.

(Choice A is false.) Receipt of the GIS is based on age and income, not on marital status. So, Michelle will continue to receive the GIS after remarrying, unless their new combined income puts her above the income level cut off for GIS benefits. So, Michelle will not lose her Guaranteed Income Supplement (GIS).

(Choice B is false.) Simon will receive Orphan's Benefits until age 25, as long as he is enrolled in a full time educational program at a qualified educational institution. Because Simon intends to remain in school, and the Orphan's Benefit is not terminated by his marriage, Simon will continue to receive this benefit until he turns 25 or until he leaves school, whichever comes first. So, Simon will not lose his Orphan's Benefits.

(Choice D is true.) The Survivor's Allowance provided under the OAS program ceases if the recipient remarries. So, Michelle will lose her Survivor's Allowance under the OAS program.

(Keywords: Old Age Security, OAS, Survivor's Allowance)

Answer is (D). Tammy will not receive Fred's share of the house.

(Concepts) Assets can be transferred outside of a will by virtue of joint tenancy arrangements or beneficiary designations, and this can be used to avoid probate.

When assets are registered in joint tenancy, the deceased's share of those assets automatically flows to the surviving joint tenants under the right of survivorship. It is not possible to use a will to bequeath assets that are held in joint tenancy; such a bequest would be void.

The proceeds of a life insurance policy that has a named beneficiary other than the estate of a deceased will automatically be paid to that designated beneficiary, and so the proceeds will not form part of the deceased's estate and will bypass probate.

However, if the will was written after the named beneficiary was designated on the life insurance policy, and the will names a different beneficiary of that policy, then the designation in the will takes precedence ovr the designation on the policy. As long as the new beneficiary named in the will is someone other than the estate of the deceased, the proceeds of the policy will still be excluded from the estate and will not be subject to probate.

The life insurance company will be protected if it pays the death benefit in good faith to the beneficiary that is named on the policy because it has not received notice of a later beneficiary designation in the will. The beneficiary who was named in the will can then sue the beneficiary who was named in the policy to recover the death benefit.

(Choice A is true.) Because the will specified a named beneficiary for the insurance policy, the death benefits will be excluded from Fred's estate and will not be subject to probate. So, the death benefit of Fred's life insurance will not pass into probate.

(Choice B is true.) Simon is the surviving joint tenant. The law does not allow Fred to use his will to name an alternate beneficiary for property that he held in joint tenancy with Simon; such property must go to Simon. So, Simon automatically receives Fred's share of the house.

(Choice C is true.) Because Fred named Tammy as the beneficiary of his life insurance policy in his will, and because his will was dated later than the original named beneficiary designation on his insurance policy, the beneficiary designation in his will takes precedence. So, Tammy should receive the death benefit of the life insurance.

If the insurance company pays the death benefit to Simon because it was unaware of the new designation in Fred's will, the insurance company cannot be held at fault. However, Tammy will be able to sue Simon to recover the death benefit.

(Choice D is false.) Even though Fred bequeathed his share of the house to her in his will, the house was held in joint tenancy with Simon. So, Fred's share will automatically pass to Simon under the right of survivorship and Tammy will not receive Fred's share of the house.

(Keywords: named beneficiary designations, joint tenancy)

Answer is (B). Bond swapping is not a passive investment strategy.

(Concepts) A passive investment strategy involves holding securities for a relatively long period with a minimum of changes made in the portfolio's composition. This type of strategy is geared towards the conservative investor. In contrast, an active investment strategy involves frequent trading of the portfolio's securities in an effort to earn a superior return.

(Choice A) A matching strategy involves matching the term to maturity of the selected bonds to the investor's need for future income. For example, if the investor believes that he will need a lump-sum of $20,000 to purchase a new car in 5 years, he would purchase a bond with a face value of $20,000 and term to maturity of 5 years. So, a matching strategy is a passive investment strategy.

(Choice B) Bond swapping involves switching from one bond to another to take advantage of changing yield curves. Because interest rates can be volatile in the short run, an investor pursuing a bond swapping strategy is prepared to make frequent trades in his bond portfolio. So, bond swapping is not a passive investment strategy; it is an active strategy.

(Choice C) The laddered approach involves investing equal amounts in several bond issues with staggered, increasing terms to maturity (e.g., 2, 4, 6, 8 and 10 years). All of the bonds are held until maturity. As the shortest-term bond matures, the proceeds are reinvested in a bond at the long-term end of the ladder. So, a laddered strategy is a passive investment strategy.

(Choice D) Immunization is a strategy in which the investor matches the duration of his bond portfolio with his need for future income. Duration is a point in time where the interest rate risk of a portfolio is offset by the reinvestment risk, and it involves a complex statistical calculation. So, immunization is a passive investment strategy.

(Keywords: passive investment strategy, bond swapping)