LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A fixed income (bond) fund's value falls when:
- AStock markets rise, since investors sell bonds to buy equities and bond prices drop
- BNever, since the bonds are held to maturity and repay their face value
- Interest rates rise, since existing lower-coupon bonds become less attractive
- DInterest rates fall, since the fund's income from new bonds declines
Correct answer: C) Interest rates rise, since existing lower-coupon bonds become less attractive
Interest-rate risk is the primary risk of bond funds. Duration measures sensitivity. Credit risk (issuer default) is the other main risk.
Why the other options are wrong
- AStock moves do not directly set bond prices.
- BBond funds can and do lose value.
- DFalling rates raise bond prices.
Exam tip
Rates up → bond prices down; longer duration = bigger move.
Common mistake
Telling a client a bond fund cannot lose money.
What this tests
CISRO competency component 2.1 — Analyze the available products that meet the client's needs — which is weighted at 30% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 2
- A segregated fund's 'guaranteed amount' after a partial withdrawal under proportional reduction is:
- A distinctive estate advantage of a segregated fund over a non-registered mutual fund held jointly with a child is:
- Segregated fund guarantees are most valuable relative to their cost when:
- A segregated fund's annual statement reports:
- Compared with a segregated fund, an exchange-traded fund (ETF) generally offers:
- A segregated fund's 'automatic death benefit reset' feature:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.