LLQP Segregated Funds & Annuities · Component 2.1 · 30% of the exam
A high-yield bond fund carries more risk than a government bond fund because:
- It holds lower-rated corporate bonds with higher default risk and behaves more like equities in downturns
- BIt is guaranteed by the issuer, so any default is made good at the expense of future yield
- CIt has no interest-rate risk, so all of its volatility comes from credit events
- DIt does not carry more risk; the higher yield simply reflects lower demand from institutional investors for smaller issues
Correct answer: A) It holds lower-rated corporate bonds with higher default risk and behaves more like equities in downturns
Credit quality is a key bond fund dimension. High-yield funds are not conservative holdings.
Why the other options are wrong
- BNo fund is guaranteed.
- CIt has both credit and interest-rate risk.
- DCredit risk is materially higher.
Exam tip
High-yield = credit risk; not a substitute for government bonds.
Common mistake
Placing a conservative client in a high-yield fund because it is 'bonds'.
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.