CSC Volume One: Chapters 1-3 Test 1 PDF
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Summary
This document contains multiple-choice questions covering chapters 1-3 of the CSC Volume One, designed for a Canadian Securities Course (CSC). The questions assess knowledge of financial markets regulations, and investment principles. This practice material is useful for those preparing for the CSC exam. Note: This PDF is a question-answer style document.
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MichaelHlinka.com CSC VOLUME ONE: Chapters 1 – 3, Test #1 1. Trades and other transactions are cleared and settled through which of the following organizations? a) CDS Clearing and Depository Services b) Canadian Investor Settlement O...
MichaelHlinka.com CSC VOLUME ONE: Chapters 1 – 3, Test #1 1. Trades and other transactions are cleared and settled through which of the following organizations? a) CDS Clearing and Depository Services b) Canadian Investor Settlement Organization c) Investment Industry Regulatory Organization of Canada d) Canadian Investment Industry Clearing and Settlement Group om 2. Another term for self-directed broker is… a) retail broker. b) discount broker. c) integrated dealer. d) investment broker..c 3. Front office performs all staff functions pertaining directly to portfolio management activities and includes all of the following except… a) b) c) Sales. Trading. Marketing. ka lin d) Trade settlement. 4. Voting shares of large Schedule 1 banks must be widely held, with the control of any single shareholder or group restricted to no more than ___________. H a) five percent. b) ten percent. el c) twenty percent. d) fifty percent. 5. Which of the following is not true about Schedule II Banks? ha a) The deposits that they hold are eligible for deposit insurance provided by CDIC. b) They may not engage in all the types of businesses permitted a ic Schedule I Bank. c) They are incorporated and operate in Canada as federally regulated foreign bank subsidiaries. M d) They tend to derive their greatest share of revenue from retail banking and electronic financial services. 6. What is the most important aspect of the insurance business in Canada? a) Underwriting. b) Investment returns. c) Collecting premiums. d) Term and whole life insurance. MichaelHlinka.com 1 / 75 MichaelHlinka.com 7. All of the following are true of the robo-advisor service except… a) portfolios are regularly balanced. b) financial planning may be offered. c) portfolios are built primarily with mutual funds. d) portfolios are created using algorithms based on modern portfolio theory. 8. What is the decentralized public transaction ledger on which all Bitcoin om transactions are created? a) the token b) the ledger c) blockchain d) public keys.c 9. Which of the following best describes the relationship between direct and indirect investment? ka a) Direct investment occurs when savers directly buy securities issued by government and corporations, indirect investment occurs when those savers sell the securities to other savers. lin b) Indirect investment occurs when the saver buys the securities issued by government and corporations, which in turn use the funds for direct investment in plant, equipment, etc. c) Direct investment occurs when savers directly buy an ownership position from a corporation, indirect investment occurs when savers H purchase debt securities from government or corporations. d) There is no link between direct and indirect investment. el 10. Which of the following is not true with respect to Canadian Exchanges and the products that trade on them? ha a) The Toronto Stock Exchange (TSX) lists equities and some debt instruments. b) The Montreal Exchange (Bourse de Montreal) trades all financial and equity futures and options. ic c) ICE NGX Canada provides electronic trading to the North American natural gas and electricity markets. d) The TSX Venture Exchange trades junior securities, income trusts and M exchange-traded funds. 11. In Ontario, trades in unlisted securities and unquoted equity securities are reported through the web-based system of the… a) Canadian Unlisted Board. b) CBID Institutional Group. c) Alternative Trading Systems. d) Unlisted securities and unquoted securities are not reported. MichaelHlinka.com 2 / 75 MichaelHlinka.com 12. CanDeal was established to facilitate trading in… a) bonds. b) options. c) derivatives. d) mutual funds. 13. Which group’s mission is it to develop a national regulatory system that fosters fair, efficient, and vibrant capital markets? om a) Canadian Securities Administrators b) The Securities and Exchange Commission c) Office of the Superintendent of Financial Institutions d) Investment Industry Regulatory Organization of Canada 14. In its role of regulator, IIROC is least likely to perform which of the following.c functions? a) Registration ka b) Enforcement c) Financial compliance d) IIROC performs all of the above. lin 15. Ms. Xu had $1,250,000 in an Investment Account and $700,000 in her RRSP account. According to CIPF guidelines, she would be covered for… a) $1,000,000 in her Investment Account. b) $1,000,000 in her Investment Account or $700,000 in her RRSP H account. c) $1,000,000 in her Investment Account and $700,000 in her RRSP account. el d) $1,250,000 in her Investment Account and $700,000 in her RRSP account. ha 16. CDIC insures eligible deposits up to _______ per deposit in each member institution. a) $ 50,000 ic b) $ 60,000 c) $ 100,000 d) $1,000,000 M 17. The Canadian securities industry follows a… a) rules-based regulatory model. b) principles-based regulatory model. c) mixed model divided equally between rules-based and principles- based. d) neither a rules-based or principles-based model. MichaelHlinka.com 3 / 75 MichaelHlinka.com 18. The general principle underlying Canadian Securities legislation is... a) caveat emptor – Let the buyer beware! b) full, true, and plain disclosure of all pertinent facts. c) approval of the investment merits of each class of securities. d) providing investors the ability to sue if their investment dealer loses them money. 19. Compliance with gatekeeper obligations begins with the… om a) Know Your Client (KYC) rule. b) IIROC Client Relationship Model. c) Investment Policy Statement (IPS). d) Relationship Disclosure Document. 20. The relationship disclosure document that IIROC dealer members must provide.c clients is least likely to include information about… a) the types of products and services offered by the firm. ka b) a description of all the reporting that the client will receive. c) the process used by the firm to assess investment suitability. d) the policies and procedures used by the firm to hire investment managers. lin 21. Conflicts of interest are not addressed by which of the following means? a) Denying the conflict. b) Avoiding the conflict. H c) Disclosing the conflict. d) Otherwise controlling the conflict situation. el 22. CRM guidelines require that the suitability of an investment decision be conducted with all of the following trigger events except… ha a) when a trade is accepted. b) when a recommendation is made. c) when securities are transferred or deposited to an account. d) All of the above events would trigger a suitability assessment. ic 23. The claim limit for arbitration is… M a) $ 100,000. b) $ 500,000. c) $1,000,000. d) There is not limit for arbitration. MichaelHlinka.com 4 / 75 MichaelHlinka.com 24. Front running is… a) another name for insider trading. b) short-selling without declaring the short sale. c) profitable trading based on enhanced analysis. d) whereby a registrant trades ahead of a known client. 25. According to the National Do Not Call List (DNCL), telemarketers and clients of telemarketers may not call any number that has been registered on the DNCL for om more than _________. a) 7 days. b) 31 days. c) 60 days. d) 180 days..c ka lin H el ha ic M MichaelHlinka.com 5 / 75 MichaelHlinka.com Chapters 1 – 3, Test #1 – Answers 1.A 1 – 4. 2.B 1 – 5. 3.D 1 – 6. 4.C 1 – 9. om 5.B 1 – 10. 6.A 1 – 11. 7.C 1 – 13. 8.D 1 – 15/16..c 9.A 2 – 3. ka 10.D 2 – 8/9. 11.A 2 – 10. 12.A 2 – 10/11. lin 13.A 3 – 3. 14.D 3 – 4/5. H 15.C 3 – 6. 16.C 3 – 6/7. el 17.B 3 – 9. 18.B 3 – 10. ha 19.A 3 – 11. 20.D 3 – 14/15. ic 21.A 3 – 12/13. 22.D 3 – 14. M 23.B 3 – 15. 24.D 3 – 16. 25.B 3 – 16/17. MichaelHlinka.com 6 / 75 MichaelHlinka.com CSC VOLUME ONE: Chapters 1 – 3, Test #2 1. What are the three categories of investment dealers that make up the Canadian Securities Industry? a) retail, wholesale, and integrated b) retail, wholesale, and institutional c) retail, institutional, and integrated d) retail, self-directed, and institutional om 2. Smaller retail or institutional investment dealers are known as... a) boutiques. b) specialists. c) broker-dealer firms. d) broker-dealer agencies..c 3. The Middle Office performs functions critical to the efficient operation of the firm and include all of the following except… a) b) c) Legal Audits Marketing ka lin d) Compliance 4. With most secondary trading of debt securities, the investment dealer acts as… H a) agent. b) buyer. c) seller. el d) principal. 5. Which of the following best describes what a Schedule I Bank is required to do in order to remain a Schedule I Bank? ha a) Voting shares must be widely held, restricting control to any one shareholder or group to no less than 20%. b) Voting shares must be widely held, restricting control to any one ic shareholder or group to no more than 20%. c) Voting control must be restricted, with one Canadian-based shareholder or group holding at least 20% of the voting shares. M d) Voting control must be restricted, with one Canadian-based shareholder or group holding at least 50% of the voting shares. MichaelHlinka.com 7 / 75 MichaelHlinka.com 6. Which of the following is least likely to true about Schedule III banks? a) They are provincially regulated. b) They are branches of foreign institutions. c) They focus on corporate and institutional finance. d) Their market share in Canada is less than the Schedule I Banks’. 7. Which of the following correctly portrays what banks that own insurance companies can do through their branch network? om a) They can sell life insurance only. b) They can sell property and casualty insurance only. c) They can sell insurance related to loans and mortgages only. d) They can sell all of the above types of insurance..c 8. What is the most important distinction between self-directed brokerage and robo- advisors? ka a) Robo-advisors provide advice. b) Robo-advisors charge lower commissions. c) Robo-advisors offer a wider range of services. d) Robo-advisors offer a wider range of products. lin 9. Which of the following are three important characteristics of capital? a) Mobile, scarce, and rare b) Mobile, rare, and important H c) Mobile, scarce and important d) Mobile, sensitive, and scarce el 10. Pools of capital gathered from investors to buy securities according to a specific investment mandate are known as… ha a) managed funds. b) structured funds. c) managed products. d) structured products. ic 11. Markets are most likely characterized as… M a) primary and dealer markets. b) primary and auction markets. c) secondary and auction markets. d) auction and dealer markets. MichaelHlinka.com 8 / 75 MichaelHlinka.com 12. Three buy orders for ABC Security hit the market at 9:30: 500 shares at $10.12 400 shares at $10.10 700 shares at $10.07 Three sell orders for ABC Security hit the market at 9:30: 400 shares at $10.12 500 shares at $10.13 300 shares at $10.15 The bid-ask at 9:31 would most likely be… om a) $10.07 – $10.15 b) $10.07 – $10.12 c) $10.12 – $10.13 d) $10.12 – $10.15.c 13. Which of the following trades all financial and equity futures and options listed in Canada? ka a) NEO Exchange b) ICE NGX Canada c) Montreal Exchange d) TSX Alpha Exchange lin 14. What is another term for dealer markets? a) Listed markets b) Unlisted markets H c) Network markets d) Under-the-counter markets el 15. Which of the following is not true about CanDeal? a) It is operated by the TMX group. ha b) It is recognized as both an ATS and investment dealer. c) It is a joint venture between Canada’s six largest investment dealers. d) It offers both institutional and retail investors access to Government securities and money market instruments. ic 16. Which of the following is true about CanPX? M a) It is an ATS that operates two distinct fixed-income marketplaces. b) It provides market data and a trading platform with access to multi- dealer competitive pricing. c) The service covers Government of Canada bonds, Treasury Bills, and corporate bonds with investment grade rating. d) It is a joint venture between several Canadian investment dealers and inter-dealer firms, and combines digital feeds from participating dealers. MichaelHlinka.com 9 / 75 MichaelHlinka.com 17. Which of the following does OSFI regulate? i) Banks ii) Investment dealers iii) Insurance companies iv) Trust and loan companies a) i), ii) & iv) only b) i), ii) & iv) only c) i), iii) & iv) only d) i), ii), iii) & iv) om 18. The function of CIPF is to safeguard investors… a) against the insolvency of member firms. b) from unprofessional investment advisors. c) from companies which disappoint investors with their income reports..c d) against losses suffered from premature redemptions of mutual fund units. ka 19. Which of the following phrases capture three of the four primary objectives in imposing regulation? a) Fairness, Economic growth, and Social objectives lin b) Fairness, Economic growth, and Economic stability c) Fairness, Economic growth, and Consumer protection d) Economic stability, Social objectives, and Consumer protection 20. All of the following are basic methods the securities acts protect the investing H public except… a) disclosure of necessary facts. el b) enforcement of laws and policies. c) registration of dealers and advisors. d) analysis of publicly traded securities. ha 21. Barbara Tan is a registered IA with Quint Securities. She has just moved into a new house. With respect to the responsibility under the National Registration Database (NRD)… ic a) this should not be reported. b) this may be reported but this is optional. M c) either Ms. Tan or Quint Securities should notify the applicable SROs. d) both Ms. Tan and Quint Securities should notify the applicable SROs. MichaelHlinka.com 10 / 75 MichaelHlinka.com 22. Which of the following is not true with respect to arbitration in the securities industry? a) It’s a method of dispute resolution. b) The arbitrator’s decision is binding. c) It’s designed for claims of $500,000 or less. d) Clients who lose in arbitration may then sue the firm. 23. Which of the following is least likely to be true about the Ombudsman for Banking om Services and Investments? a) It provides a prompt and impartial resolution. b) It is independent of the financial services industry. c) The process is binding for both the investor and financial services provider..c d) It investigates customer complaints against financial services provides. ka 24. All of the following are examples of unethical practices except… a) using high-pressure or otherwise undesirable selling techniques. b) trading in one’s own account after effecting the same trade for a lin client. c) making a fictitious trade that involves no change in beneficial ownership. d) entering, or attempting to enter, into any arrangement to sell and repurchase a security in an effort to manipulate the market. H 25. Which of the following organizations has established rules that telemarketers and the organizations that hire them must follow? el a) OSFI b) CRTC ha c) IIROC d) DNCL ic M MichaelHlinka.com 11 / 75 MichaelHlinka.com Chapters 1 – 3, Test #2 – Answers 1.C 1 – 5/6. 2.A 1 – 6. 3.C 1 – 6. 4.D 1 – 7. 5.B 1 – 9/10. om 6.A 1 – 10. 7.C 1 – 12. 8.A 1 – 13..c 9.D 2 – 3. 10.C 2 – 6. 11.D 12.C 2 – 7. 2 – 8. ka lin 13.C 2 – 8/9. 14.B 2 – 9. H 15.D 2 – 10/11. 16.D 2 – 11. el 17.C 3 – 5. 18.A 3 – 6. ha 19.D 3 – 9. 20.D 3 – 10. ic 21.D 3 – 11. 22.D 3 – 15. M 23.C 3 – 15. 24.B 3 – 16. 25.B 3 – 16. MichaelHlinka.com 12 / 75 MichaelHlinka.com CSC VOLUME ONE: Chapters 4 & 5, Test #1 1. Microeconomics would be least likely to examine… a) how minimum wage laws affect the supply of labour. b) if higher taxes on alcohol would impact the tourism industry. c) the impact of higher interest rates on investment in capital equipment. d) the relationship between tuition costs and the decision to attend university versus college. om 2. The value of all goods and services produced in a country in a year is known as… a) Net National Product.c b) Net Domestic Product c) Gross National Product d) Gross Domestic Product ka 3. Assume that productivity growth exceeds increases in the unit cost of production. Each of the following is likely except… a) prices will fall. lin b) corporate profits will increase. c) more goods and services will be sold. d) there will be a cycle of demand-pull inflation. H 4. “Inflation is stable… Corporate profits are rising and new business start-ups outnumber bankruptcies”… describes which phase of the business cycle? el a) expansion b) peak c) contraction ha d) trough 5. Housing starts and manufacturers’ new orders are examples of… a) leading indicators. ic b) co-incident indicators. c) lagging indicators. d) the Composite Index. M 6. All of the following are considered lagging indicators except… a) inflation. b) labour costs. c) unemployment. d) personal income. MichaelHlinka.com 13 / 75 MichaelHlinka.com 7. The official Statistics Canada definition of a recession is… a) a 5% drop in economic activity. b) two consecutive quarters of declining real GDP. c) two consecutive quarters of declining nominal GDP. d) None of the above. 8. Which of the following are the two key indicators that describe the labour market? om a) Participation rate and unemployment rate b) Employment rate and unemployment rate c) Working-age population and participation rate d) Working-age population and unemployment rate 9. There are four general types of unemployment: Cyclical, seasonal, frictional and.c structural. Which of the following statements are true about them? i) Structural unemployment may result from a conscious choice about wages ka ii) Cyclical unemployment rises during the expansion phase of the business cycle iii) Frictional unemployment should be understood as a normal part of a healthy economy lin a) i) and ii) only b) i) and iii) only c) ii) and iii) only d) i), ii) and iii) H 10. The natural unemployment rate is often viewed as that level of unemployment that is… el a) impossible to achieve. b) consistent with stable inflation. ha c) where the economy is operating at full capacity. d) consistent with zero structural and frictional unemployment. 11. Which of the following is not true with respect to factors that affect interest rates? ic a) Higher inflation results in higher real interest rates. b) The greater the default risk, the higher the interest rates. c) An increase in the savings rate will lower interest rates. M d) A large government deficit raises the demand for capital. MichaelHlinka.com 14 / 75 MichaelHlinka.com 12. Higher interest rates affect the economy in all the following ways except… a) mortgage payments will decline. b) savers enjoy higher interest income. c) the cost of capital increases for business. d) consumers are discouraged from buying homes and other durable goods. 13. The CPI stands for the _______________________ and is a measure of the om ___________ in Canada. a) Cost of Products… spending power b) Canadian Price Index… cost of living c) Consumer Price Index… cost of living d) Customer Price Index…. real GDP growth.c 14. At the end of 2021, the CPI stood at 110. At the end of 2022, it was 115. Inflation was closest to… ka a) 4.6% b) 4.8% c) 5.0% lin d) Insufficient information 15. Inflation that occurs due to shocks from the supply side of the economy is known as… H a) cost-pull inflation. b) cost-push inflation. c) output gap inflation. el d) demand-pull inflation. 16. The Phillips curve says… ha a) lowering inflation means sacrificing actual GDP. b) lowering inflation means sacrificing potential GDP. c) lowering inflation means lowering economic growth. ic d) lowering inflation means increasing unemployment. 17. The most important component of the current account is… M a) strong demand. b) investment income. c) merchandise trade. d) taxes and import duties. MichaelHlinka.com 15 / 75 MichaelHlinka.com 18. If Canada is running a deficit in its current account, this means… a) the nation is not benefiting from trade. b) the nation is running a deficit in its capital account. c) the nation is running a surplus in its capital account. d) the balance of payments is in a state of disequilibrium. 19. The Canadian and US dollars are trading at par. If inflation in the United States is expected to be higher than in Canada over the next ten years, we would om expect that… a) interest rates will be higher in the US and its currency will appreciate. b) interest rates will be higher in the US and its currency will depreciate. c) interest rates will be lower in the US and its currency will appreciate. d) interest rates will be higher in the US and its currency will depreciate..c 20. In a floating exchange rate system, the value of a currency is determined by… ka a) market forces. b) the Central Bank. c) the Federal Government. d) the International Monetary Fund. lin 21. All of the following are major functions of the Bank of Canada except… a) to conduct monetary policy. b) to issue and remove bank notes. H c) to prepare balanced federal budgets. d) to act as the government’s fiscal agent. el 22. The overnight rate operates within a band of ____ basis points. a) 25 ha b) 50 c) 100 d) 200 ic 23. Overnight repos are used by the Bank of Canada… a) to narrow the operating band. M b) when it wants to push interest rates up. c) when it wants to push interest rates down. d) to influence call loans and the interbank deposit rates through the large value transfer system. MichaelHlinka.com 16 / 75 MichaelHlinka.com 24. A redeposit means... a) that the Chartered Banks are redepositing money with the Bank of Canada which puts upward pressure on interest rates. b) that the Chartered Banks are redepositing money with the Bank of Canada which puts downward pressure on interest rates. c) that the Bank of Canada is redepositing money with the Chartered Banks which puts downward pressure on interest rates. d) that the Bank of Canada is redepositing money with the Chartered om Banks which puts upward pressure on interest rates. 25. Which of the following is least likely to be understood as a disadvantage associated with monetary policy? a) It can be difficult to target a specific region..c b) Tax increases and government spending are unpopular. c) If interest rates are already very low, lowering them even more may not have any impact. ka d) Lowering interest rates may not have any impact if the consumer doesn’t feel confident enough to spend. lin H el ha ic M MichaelHlinka.com 17 / 75 MichaelHlinka.com Chapters 4 & 5, Test #1 – Answers 1.C 4 – 4. 2.D 4 – 6. 3.D 4 – 8. 4.A 4 – 10/12. om 5.A 4 – 12/13. 6.D 4 – 12/13. 7.D 4 – 13. 8.A 4 – 14..c 9.B 4 – 17. ka 10.C 4 – 17. 11.A 4 – 18/19. 12.A 4 – 19. lin 13.C 4 – 20/22. 14.A 4 – 20/22. (115 – 110)/110 = 4.6% H 15.B 4 – 23. el 16.D 4 – 23/24. 17.C 4 – 24/25. ha 18.C 4 – 24/25. 19.B 4 – 25/27. 20.A 4 – 25/27. ic 21.C 5 – 6/7. M 22.B 5 – 8/9. 23.C 5 – 9/10. 24.C 5 – 10. 25.B 5 – 12. MichaelHlinka.com 18 / 75 MichaelHlinka.com CSC VOLUME ONE: Chapters 4 & 5, Test #2 1. Market equilibrium is an important concept in the stock market because… a) the supply of a given stock is unlimited. b) the demand for a given stock will not fluctuate in the short run. c) the demand for a given stock will not fluctuate in the long run. d) this establishes the price at which a stock will be exchanged at any point in time. om 2. Nominal GDP will always exceed Real GDP unless… a) there is inflation in the system. b) there is deflation in the system. c) the constant dollar approach is used. d) the constant dollar approach is not used..c 3. Which of the following is least likely to have an impact on a country’s GDP growth? ka a) Increases in population. b) Improvements in technology. c) Increases in the capital stock. d) Increases in government spending. lin 4. If productivity growth exceeds the increases in the cost of production, all of the following are true except… H a) this tends to have a deflationary effect. b) this tends to have an inflationary effect. c) firms enjoy higher profit margins in the short run. el d) consumers enjoy lower prices in the long run. 5. “Labour and product shortages cause wage increases… interest rates rise and bond prices fall… stock prices fall and stock market activity declines…” This ha describes which phase of the business cycle? a) trough b) contraction ic c) recovery d) peak M 6. Housing starts and stock prices are two important… a) leading indicators. b) co-incident indicators. c) lagging indicators. d) determinants of interest rates. MichaelHlinka.com 19 / 75 MichaelHlinka.com 7. Statistics Canada divides the working age population into which of the following three groups? a) Employed, Unemployed, Retired b) Employed, Unemployed, Discouraged workers c) Participation Group, Unemployed Group, Retired d) Unable to work, Not working by choice, Labour Force 8. If unemployment increases by the same amount that employment decreases… om a) the participation rate will increase. b) the participation rate will decrease. c) the participation rate will be unaffected. d) either a) or b) depending on the phase of the business cycle..c 9. Which of the following is/are not true with respect to unemployment? i) Cyclical unemployment tends to rise during the expansion phase of the business cycle. ka ii) Frictional unemployment is not a normal part of a healthy economy. iii) Structural unemployment typically leads to shorter periods of unemployment than frictional unemployment. iv) The distinction between frictional and structural unemployment is lin sometimes difficult to determine. a) i) & ii) b) i) & iii) c) i), ii) & iii) H d) i), ii), iii) & iv) 10. Interest rates are currently being raised in the United States of America. As a el result, the Canadian economy should be impacted in all of the following ways except… ha a) demand for interest-rate sensitive products like automobiles should be expected to decrease. b) Canadian bonds should be expected to decline in value. c) American consumers will have to pay more to service their household ic debt, which means a decline in discretionary spending on goods and services made in Canada. d) the Canadian dollar should be expected to appreciate. M MichaelHlinka.com 20 / 75 MichaelHlinka.com 11. Inflation is generally bad for the economy. However, which of the following individuals or institutions might actually benefit from a high inflation environment? a) A senior citizen on a fixed income. b) A government that has issued a great deal of long-term, fixed-rate debt. c) A business that sells a product whose demand is highly price- sensitive. d) A company which has borrowed a great deal of money on a short- om term basis. 12. The price of oil has increased significantly in the past twelve months. An economist would conclude that… a) this must be inflationary..c b) this must be inflationary only if the Consumer Price Index (CPI) has increased over this period of time. c) this could be inflationary or just a one-time jump in price, reflecting the ka increased scarcity of oil. d) this could not be inflationary because a barrel of oil is not one of the 600 products from which the CPI is calculated. lin 13. Europe has a stronger labour movement that does North America. As a result, policy makers in that part of the world must be more conscious of… a) disinflation. b) the Phillips curve. H c) cost-push inflation. d) demand-pull inflation. el 14. The opposite of inflation is… a) reflation. ha b) deflation. c) disinflation. d) a positive output gap. ic 15. Currently inflation is 6%, which is 3% higher than the government would like it to be. According to the Phillips Curve, to reduce inflation, the government would have to accept… M a) lower unemployment. b) higher unemployment. c) lower economic growth. d) higher economic growth. MichaelHlinka.com 21 / 75 MichaelHlinka.com 16. When Canada has a surplus in its Current Account… a) the Balance of Payments must be temporarily unbalanced. b) it is buying more goods and services from foreigners than it is selling to them. c) Canadians are investing more abroad than foreigners are investing in Canada. d) there must also be a surplus in the Capital Account. om 17. If the Canadian dollar appreciates in value… a) this is good for Canadian consumers and bad for Canadian exporters. b) this is bad for Canadian consumers and good for Canadian exporters. c) this is bad for Canadian exporters and does not affect Canadian consumers..c d) this is good for Canadian consumers and does not affect Canadian exporters. ka 18. Which of the following reasons is least likely to account for why countries with large public-sector debts and deficits are less attractive to foreign investors? a) Debts give government the incentive to see inflation grow. lin b) High deficits may cast doubt on the government’s ability to repay. c) High deficits are politically unpopular, leading to a change in leaders. d) Governments must sell securities, increasing supply and lowering their price. H 19. When the government is spending more than it is bringing in in tax revenue… a) it is running a deficit and the national debt increases. el b) it is running a deficit and the national debt decreases. c) it is running a surplus and the national debt increases. d) it is running a surplus and the national debt decreases. ha 20. You are examining the following information for XYZ Nation for the past fiscal year: Government expenditure on goods and services: $40m ic Government transfer payments: $10m Government revenue: $35m M Based on these entries, the national debt has… a) fallen by $5m. b) fallen by $15m. c) increased by $5m. d) increased by $15m. MichaelHlinka.com 22 / 75 MichaelHlinka.com 21. Which of the following is not one of the main areas of responsibility for the Bank of Canada? a) Physical currency b) Funds management c) The Canadian financial system d) Increasing fluctuations in the general level of production. 22. The Bank Rate is… om a) the minimum rate at which the Bank of Canada will lend money to the chartered banks and other members of the Canadian Payments Association. b) the maximum rate at which the Bank of Canada will lend money to the chartered banks and other members of the Canadian Payments.c Association. c) the interest rate set in the overnight market – the marketplace where major Canadian financial institutions lend each other money on a ka short-term basis. d) the interest rate set in the money markets – the marketplace where major Canadian financial institutions lend international financial institutions on a short-term basis. lin 23. Overnight reverse repos are used by the Bank of Canada to… a) assist with moral suasion. b) relieve undesired upward pressure on interest rates. H c) relieve undesired downward pressure on interest rates. d) keep interest rates outside the Bank of Canada’s operating band. el 24. Drawdowns and redeposits involve… a) moving funds owned by the Bank of Canada in and out of the ha chartered banks. b) moving bonds owned by the Bank of Canada in and out of the chartered banks. c) moving funds owned by the Federal Government in and out of the ic chartered banks. d) moving funds owned by the Federal Government in and out of the International Monetary Fund. M 25. In the United States, the Federal Reserve Board is raising interest rates. In order for Fiscal Policy to be consistent with this action, the American government should… a) cut income taxes. b) spend more on higher education. c) reduce tariffs on Chinese imports. d) spend less on the military and Medicare. MichaelHlinka.com 23 / 75 MichaelHlinka.com Chapters 4 & 5, Test #2 – Answers 1.D 4 – 5. 2.B 4 – 8. 3.D 4 – 8. 4.B 4 – 8. 5.D 4 – 10/12. om 6.A 4 – 12. 7.D 4 – 14. 8.C 4 – 14/15..c 9.C 4 – 17. 10.D 4 – 19. 11.B 12.C 4 – 20. 4 – 20/21. ka lin 13.C 4 – 23. 14.B 4 – 23. H 15.B 4 – 23/24. 16.C 4 – 24. el 17.A 4 – 24/25. 18.C 4 – 26. ha 19.A 5 – 3/4. 20.C 5 – 3/4. ic 21.D 5 – 7. 22.A 5 – 8/9. M 23.C 5 – 9/10. 24.C 5 – 10. 25.D 5 – 12. MichaelHlinka.com 24 / 75 MichaelHlinka.com CSC VOLUME ONE: Chapters 6 – 7, Test #1 1. The details of a bond issue are outlined in its… a) trust deed. b) prospectus. c) protective provisions. d) offering memorandum. 2. The income from a strip bond is considered… om a) capital gains. b) interest income. c) interest income on the coupons and capital gains on the principal. d) capital gains on the coupons and interest income on the principal..c 3. A strip bond…. a) is sold at par and matures at par. It makes regular interest payments. ka b) is sold at a discount and matures at par. It makes regular interest payments. c) is sold at a premium and matures at par. It makes regular interest payments. lin d) is sold at a discount and matures at par. It does not make regular interest payments. 4. Which of the following government-issued bonds are usually callable? H a) Municipal bonds only b) Provincial bonds only el c) Government of Canada bonds only d) Government of Canada and municipal bonds 5. Which of the following bonds would most likely provide the investor with the ha highest yield? a) A 10-year straight bond. b) A 10-year callable bond. ic c) A 10-year retractable bond. d) A 10-year convertible bond. M 6. Currently, there is a 5% convertible debenture that is trading at 95. Each $1,000 face value is convertible into 20 common shares. Since the convertible bonds were issued, interest rates have increased sharply. Therefore, it is most likely that the price of the common shares is closest to... a) $45.00. b) $47.50. c) $50.00. d) $55.00. MichaelHlinka.com 25 / 75 MichaelHlinka.com 7. All of the following statements are true with respect to treasury bills except… a) they pay interest at maturity. b) the difference between the issue price and par represents the return on investment. c) they are short-term government obligations offered in denominations of $1,000 to $1,000,000. d) they are sold every two weeks at auction by the Minister of Finance through the Bank of Canada. om 8. A real return bond issued by the Government of Canada uniquely protects the investor against… a) the risk of default. b) the risk of inflation..c c) the risk of deflation. d) the risks of inflation and default. ka 9. The Province of Ontario issues a provincial bond with a ten-year maturity and a guaranteed bond, also with a ten-year maturity. We would expect that the guaranteed bond has a… lin a) lower yield. b) higher yield. c) similar yield. d) Provinces do not issue guaranteed bonds. H 10. A railway company wants to borrow from the capital markets. You would recommend that it considers issuing… el a) warrants. b) collateral trust bonds. c) subordinated debentures. ha d) equipment trust certificates. 11. Which of the following is least likely to be true of GICs? ic a) All GICs are non-redeemable. b) Both principal and interest payments are guaranteed. c) Investors can choose frequency of interest payments. M d) The interest rate for escalating-rate GICs increases over the GIC’s term. MichaelHlinka.com 26 / 75 MichaelHlinka.com Please refer to the following bond quote for Questions #12 and #13… Issue Coupon Maturity Bid Ask Yield Date PQR Int’l 6.00 1 July/10 101.40 101.60 5.63% 12. How much would it cost to buy $100,000 face of this bond? a) $100,000 om b) $100,000 plus accrued interest c) $101,400 plus accrued interest d) $101,600 plus accrued interest 13. Since this security was issued, interest rates have increased slightly. Given this fact, which of the following is most likely true?.c a) PQR’s credit quality has improved. b) The company’s business has deteriorated. ka c) Moody’s has changed PQR’s debt rating from AA to A. d) None of the above provides a reasonable explanation. 14. A bond’s present value is found by… lin a) adding the present value of the bond’s coupon payments and the present value of the bond’s principal to be received at maturity. b) adding the present value of the bond’s coupon payments and the future value of the bond’s principal to be received at maturity. H c) adding the future value of the bond’s coupon payments and the present value of the bond’s principal to be received at maturity. d) adding the future value of the bond’s coupon payments and the future el value of the bond’s principle at maturity. 15. What is the present value of the second coupon of a 5% semi-annual pay bond ha trading at 92, assuming a discount rate of 7%? (Base your answer on $1,000 face.) a) $21.47 ic b) $21.84 c) $23.34 d) $43.67 M MichaelHlinka.com 27 / 75 MichaelHlinka.com 16. An 8% annual pay bond with face value of $100,000 is currently trading at 92. It has three years to maturity. Should an investor with a 10% discount rate purchase this security? a) Yes, because its present value of $95,026 is more than its current price of $92,000. b) No, because its present value of $95,026 is less than its issue price of $100,000. c) Yes, because its current market price of $92,000 is less than its issue price of $100,000. om d) No, because the discount rate of 10% exceeds the bond’s 8% coupon. 17. A T-Bill with 80 days to maturity is priced at 99.25. What is its effective yield? a) 3.40%.c b) 3.42% c) 3.45% d) 4.32% ka 18. A semi-annual bond with a 5% coupon is currently trading at 94. It has four years to maturity. Its current yield is… lin a) 2.50%. b) 5.00%. c) 5.32%. d) Insufficient information. H 19. An investor goes into a bank and sees that a one-year GIC is paying 2%. This refers to its… el a) real return. b) nominal return. c) inflation-adjusted return. ha d) Both a) & c) 20. The graph depicting the term structure of interest rates is known as the… ic a) yield curve. b) bond curve. c) real return graph. M d) nominal return graph. MichaelHlinka.com 28 / 75 MichaelHlinka.com 21. According to Expectations Theory, if the yield curve is upward-sloping… a) the market expects the economy to slip into recession. b) the market expects interest rates to be lower in the future. c) the market expects interest rates to be higher in the future. d) the market expects more supply to come to the market in the future. 22. Which of the following bonds would likely be least volatile? om a) 5-year GOC bond with a 5% coupon. b) 5-year GOC bond with a 10% coupon. c) 10-year GOC bond with a 5% coupon. d) 10-year GOC bond with a 10% coupon. 23. Duration measures….c a) interest rate risk. b) reinvestment risk. ka c) Both interest rate risk and reinvestment risk. d) Neither interest rate risk nor reinvestment risk. 24. An investor held a $250,000 face value 5% Government of Canada semi-annual pay bond that matures October 15th, 2030. When it was trading at 98, he sold it. lin If the trade settles on June 24th, the buyer of the bond owes the seller of the bond accrued interest of… a) $2,397.26. H b) $3,676.37. c) $3,869.86. d) $8,630.14. el 25. Bond indexes are least likely to be used… ha a) to construct bond index funds. b) as a performance measurement tool. c) as a guide to the performance of the bond market. d) by the Bank of Canada to help conduct monetary policy. ic M MichaelHlinka.com 29 / 75 MichaelHlinka.com Chapters 6 – 7, Test #1 – Answers 1.A 6 – 4. 2.B 6 – 8. 3.D 6 – 8. 4.B 6 – 9. 5.B 6 – 9/12. om 6.B 6 – 10/12. 7.A 6 – 14. 8.B 6 – 14..c 9.C 6 – 15. 10.D 6 – 18. ka 11.A 6 – 19/20. 12.D 6 – 21. 13.A 6 – 21. lin 14.A 7 – 4. 15.C 7 – 5/8. $25/1.0352 = $23.34 H 16.A 7 – 5/8. Solve for PV: 3 = N… 10 = I/Y... 8 = PMT… 100 = FV… [CPT][PV]… 95.026 The bond’s present value of $95,026 exceeds its $92,000 market price. el 17.C 7 – 8/9..75/99.25 x 365/80 x 100 = 3.45% ha 18.C 7 – 9. 5/94 x 100 = 5.32%. 19.B 7 – 13. 20.A 7 – 13/14. ic 21.C 7 – 14/15. M 22.B 7 – 17/18. 23.A 7 – 18/19. 24.A 7 – 23/24. Days to next coupon payment: 70 250,000 x.05 x 70/365 = $2,397.26 25.D 7 – 24/25. MichaelHlinka.com 30 / 75 MichaelHlinka.com CSC VOLUME ONE: Chapters 6 – 7, Test #2 1. What increases the leverage potential for bonds and debentures, compared to preferred shares? a) Companies are legally required to make interest payments on bonds and debentures; they are not legally obligated to make dividend payments on preferred shares. b) Companies are legally required to make dividend payments on preferred shares; they are not legally obligated to make interest om payments on bonds and debentures. c) Interest payments on bonds and debentures are not a tax-deductible expense for the corporation; preferred dividend payments are a tax- deductible expense d) Interest payments on bonds and debentures are a tax-deductible.c expense for the corporation; preferred dividend payments are not a tax-deductible expense. 2. In November 2010, BCE issued a 20-year bond. Which of the following ka statements is true as of May 2023? a) It should be considered a short-term bond. b) It should be considered as a medium-term bond. lin c) It should be considered as a long-term bond. d) It could be considered either as a medium-term or long-term bond. 3. You are managing the portfolio of a high net-worth client. There is a strip bond H on the market with a very attractive 7% yield. If you had the choice of buying it in your client’s trading account or RRSP account, you would recommend… el a) buying it in the trading account because the gains from a strip bond are treated as capital gains. b) buying it in the trading account because the interest income that your ha client would receive annually would take care of the tax consequences. c) buying it in the RRSP account because although interest income is received each year, it is not enough to take care of the tax consequences. ic d) buying it in the RRSP account because cash is not received until the strip bond matures, but the client is responsible for making annual cash payments on the interest income from it. M 4. Which of the following bonds are the opposite of extendible bonds? a) Callable b) Convertible c) Retractable d) Redeemable MichaelHlinka.com 31 / 75 MichaelHlinka.com 5. What is the purpose of the purchase fund provision? a) It requires companies to retire a set amount of debt every year. b) It acts as a price support if the price of the bonds falls at or below a stipulated price. c) It forces investors to surrender some of their bonds if the price ever falls below par value. d) It forces investors to surrender some of their bonds if the price ever rises above par value. om 6. Which of the following fixed income products would most likely provide an investor the highest return? a) A 10-year debenture. b) A 10-year extendible bond..c c) A 10-year retractable bond. d) A 10-year convertible debenture. ka 7. XYZ Company issued a 10-year convertible bond, each $1,000 face value convertible into 50 common shares. The bond had the forced conversion featured attached to it. That feature would most likely be utilized if the price of the common shares were… lin a) below $20 per share. b) at $20 per share. c) above $20 per share. d) Insufficient information. H 8. All of the following are common protective provisions found in Canadian corporate bonds except… el a) debt test. b) negative pledge. ha c) retractable debt test. d) limitation on sale and leaseback. 9. Which of the following is not true with respect to the federal government and the ic Government of Canada bonds that it issues? a) All Government of Canada bonds are callable. M b) Investors assign the highest quality ratings to federal government bonds. b) The federal government is the largest single issuer of marketable bonds in the Canadian bond market. c) Canadian bonds will have higher yields than American bonds if the market thinks that Canadian bonds are riskier. MichaelHlinka.com 32 / 75 MichaelHlinka.com 10. The gains from treasury bills are taxed as… a) capital gains. b) interest income. c) Either capital gains or interest income: It is the investor’s choice. d) Either capital gains or interest income: It is Revenue Canada’s choice. 11. A real return annual-pay bond carrying a 3% coupon was priced at 100 at issue om date. If inflation is 1% over the first year, then which of the following is true? a) The investor would receive $3,000 in interest and the bond would be worth $101,000. b) The investor would receive $3,030 in interest and the bond would be worth $101,000..c c) The investor would receive $4,000 in interest and the bond would be worth $100,000. d) The investor would receive $4,000 in interest and the bond would be ka worth $101,000. 12. Serial debentures or instalment debentures are typically issued by… lin a) corporations. b) municipalities. c) provincial governments. d) the federal government. H 13. In order to raise investment capital, a holding company would be most likely to issue… el a) collateral trust bonds. b) subordinated debentures. c) equipment trust certificates. ha d) guaranteed investment certificates. 14. The Bank of Nova Scotia wants to raise investment capital in the United States to finance its expansion. It contracts with a US underwriter to sell a new issue of ic bonds, denominated in US currency in the US market. This is an example of a(n)… M a) foreign bond. b) international bond. c) North American bond. d) Free Trade Zone bond. MichaelHlinka.com 33 / 75 MichaelHlinka.com 15. Interest rates are extremely low. A risk-averse investor believes that the stock market is going to do much better than the fixed-income market, but wants the security associated with GICs. You would recommend the purchase of… a) laddered GICs. b) instalment GICs. c) index-linked GICs. d) interest-rate linked GICs. om 16. Which of the following is not one of the independent rating services for bonds in Canada? a) DBRS b) Moody’s Canada c) Standard and Poor’s.c d) TSX Bond Rating Service 17. Which of the following corporate bonds would be most likely to receive an “Aaa” ka rating? a) A clothing retailer that recently IPO’d. b) A forestry company that has a great deal of debt. lin c) An insurance company that has been in business for fifty years. d) None of the above – only government securities receive Aaa ratings. 18. The higher the discount rate… H a) the higher the present value of the bond’s income stream. The present value of the bond’s principal is unaffected. b) the higher the present value of the bond’s income stream and the el higher the present value of the bond’s principal. c) the lower the present value of the bond’s income stream. The present value of the bond’s principal is unaffected. ha d) the lower the present value of the bond’s income stream and the lower the present value of the bond’s principal. 19. An 7% annual pay bond with face value of $100,000 has two years to maturity ic and is current trading at 102. Should an investor with a discount rate of 6% purchase this security? M a) No. The investor will incur a $2,000 loss when the bond matures. b) No. The bond’s present value of $101,833 is below its $102,000 purchase price. c) Yes. The bond’s coupon rate exceeds the investor’s discount rate. d) Yes. The bond’s present value of $107,574 exceeds its $102,000 purchase price. MichaelHlinka.com 34 / 75 MichaelHlinka.com 20. A T-Bill with 340 days to maturity is priced at 98.25. What is its effective yield? a) 1.63% b) 1.66% c) 1.88% d) 1.91% 21. A semi-annual bond with a 6% coupon is currently trading at 102. It has three years to maturity. Its current yield is… om a) 5.88%. b) 5.92%. c) 5.97%. d) 6.00%. 22. Reinvestment risk is the risk that….c a) interest rates may have fallen by the time the bond matures. b) interest rates may increase and the value of the bond will fall. ka c) more debt will be issued and the price of all debt in the marketplace will suffer as a result. d) coupon payments may have to be reinvested at a lower rate than what prevailed when the bond was issued. lin 23. A weakness of Liquidity Preference Theory is that… a) it does not explain a flat yield curve. b) it does not explain an upward-sloping yield curve. H c) it does not explain a downward-sloping yield curve. d) it does not explain the impact of reinvestment risk. el 24. A bond is priced at 102. Its duration is 5. If interest rates increase by 1.5%, the bond will be priced at… ha a) 94.35. b) 107.50. c) 109.50. d) 109.65. ic 25. A bond with face value of $250,000 and a 5% coupon matures December 1, 2028. It was sold at a price of 99 on Tuesday October 30th, 2021. Including accrued M interest, approximately how much would the buyer of the bond have to pay the seller? a) $247,750 b) $250,000 c) $252,750 d) $255,250 MichaelHlinka.com 35 / 75 MichaelHlinka.com Chapters 6 – 7, Test #2 – Answers 1.D 6 – 3/4. 2.B 6 – 7. 3.D 6 – 8. 4.C 6 – 9/10. om 5.B 6 – 12/13. 6.A 6 – 9/11. 7.C 6 – 11. 8.C 6 – 13..c 9.A 6 – 14. 10.B 6 – 14. 11.B 6 – 14. ka Value of bond grows by 1% to $101,000. 3% of that is the interest income received. 12.B 6 – 16. 13.A 6 – 18. lin 14.A 6 – 17/18. 15.C 6 – 19/20. 16.D 6 – 21. H 17.C 6 – 22. 18.D 7 – 3/4. el 19.B 7 – 5/8. Solve for PV: 2 = N… 6 = I/Y... 7 = PMT… 100 = FV… [CPT][PV]… 101.833 The bond’s present value of $101,833 is below its $102,000 market price. ha 20.D 7 – 8/9. 1.75/98.25 x 365/340 x 100 = 1.91% 21.A 7 – 9. 6/102 = 5.88% ic 22.D 7 – 12. 23.C 7 – 15. 24.A 7 – 18/19. M 102 x.05 x 1.5 = 7.65 price change. Because interest rates went up, the bond’s price will go down to 94.35. 25.C 7 – 23/24. Days from previous coupon payment: 153 250,000 x.05 x 153/365 = $5,239.73 accrued interest 250,000 x.99 = $247,500 principal amount Total cost: $252,739.73 MichaelHlinka.com 36 / 75 MichaelHlinka.com CSC VOLUME ONE: Chapters 8 – 9, Test #1 1. A group of shares that trade in less than a standard trading unit is called a(n)… a) odd lot. b) even lot. c) uneven lot. d) broken lot. 2. Which of the following is least likely to be a benefit of common share ownership? om a) marketability b) unlimited liability c) potential for capital appreciation d) favourable tax treatment for dividends.c 3. All of the following are categories of restricted shares except… a) restricted voting. ka b) non-voting shares. c) subordinate voting shares. d) stock dividend split shares. lin 4. An investor purchased 200 shares of ABC Company at $20 per share. When the shares were trading at $50 per share, the company executed a 2 for 1 stock split. A month later when the shares were at $40, the investor sold 200 shares. What would be her profit on those 200 shares? H a) $ 4,000 b) $ 6,000 el c) $ 8,000 d) $12,000 5. If a company orders a 1 for 3 reverse split or consolidation… ha a) there will be fewer shares at a lower price. b) there will be fewer shares at the same price. c) there will be fewer shares at a higher price. ic d) there will be more shares at a lower price. M MichaelHlinka.com 37 / 75 MichaelHlinka.com Please use the following information for Questions #6 & #7. 52 Weeks High Low Stock Div. High Low Close Change Volume $25.00 $16.25 GED.60 $23.00 $22.40 $22.90 –$.25 500,000 6. What was the previous day’s close for GED? a) $22.65 b) $22.75 om c) $23.15 d) $23.25 7. What could an investor bought/sold GED at the opening of that day’s trading? a) $22.40.c b) $22.90 c) $23.00 d) Insufficient information. ka 8. A company has an issue of cumulative preferred shares outstanding. Its regularly quarterly dividend of $.25 per share has been omitted for two consecutive quarters. Before the common shareholders receive a dividend, the lin preferred shareholder would have to receive a dividend of _________ per share. a) 0 b) $.25 c) $.50 H d) $.75 9. Which of the following features associated with preferred shares is most el favourable to investors? a) Purchase fund. ha b) Callable feature. c) Redeemable feature. d) Non-cumulative feature. ic 10. One of the least heavily weighted sectors of the S&P/TSX Composite Index is… a) Energy. M b) Materials. c) Financials. d) Health Care. MichaelHlinka.com 38 / 75 MichaelHlinka.com 11. Which of the following is not true with respect to the Dow Jones Industrial Average? a) It consists of 30 stocks. b) It is market-cap weighted. c) Its stocks are considered “blue-chip”. d) Its stocks have a below-average risk profile. 12. Which of the following is true of the S&P 500? om a) It is price-weighted. b) It is weighted by market capitalization. c) It is based on a large number of transportation stocks. d) It draws its members from companies that trade on different exchanges around the world..c 13. An investor believes that the Japanese economy will over-perform the rest of the world over the next decade and wants exposure to its stock market. You would recommend that he invests in the… ka a) DAX b) CAC 40 c) FTSE 100 lin d) Nikkei Stock Average 14. An investor bought 500 shares of BB on Friday July 15th in a cash account. On what date would she be required to make full payment for this purchase? H a) Friday July 15th b) Monday July 18th c) Tuesday July 19th el d) Wednesday July 20th 15. Interest on a margin loan is… ha a) calculated daily and charged daily. b) calculated daily and charged weekly. c) calculated daily and charged monthly. ic d) calculated daily and charged annually. 16. An investor purchased 500 shares of ABC Security at $1.90 per share in early M morning trading, promising to deposit sufficient margin before business the following morning. If the shares ranged in price from $1.60 to $2.05 during the day before closing at $1.70, what is the margin he would be required to deposit, assuming that he started the day with no cash or securities in his account? a) $438 b) $780 c) $790 d) $950 MichaelHlinka.com 39 / 75 MichaelHlinka.com 17. What would the margin surplus be if the next day, the shares closed at $2.20? a) $380 b) $425 c) $550 d) $930 18. An investor short sold 1,500 shares of GHI Security at $22. It was eligible for reduced margin. What is the additional margin deposit he would be required to make? om a) $ 9,900 b) $16,500 c) $33,000 d) $42,900.c 19. Refer to #18. GHI subsequently rises to $24. What additional margin must be deposited? ka a) $ 900 b) $2,700 c) $3,000 d) $3,900 lin 20. Refer to #19. Assume that instead of depositing additional margin, the investor closed out his position. He would lose… a) $1,500. H b) $3,000. c) $3,900. d) $5,000. el 21. With respect to short selling, all of the following statements are true except… ha a) There is a time limit of one year on short sales. b) The short seller is responsible for maintaining adequate margin in the short account. c) The short seller is liable for any dividends or other benefits paid during ic the period the account is short. d) There can be difficulties in borrowing a sufficient quantity of the security sold short to cover the short sale. M 22. All of the following are risks associated with short-selling except… a) liability. b) regulatory risk. c) buy-in requirements. d) bankruptcy of company. MichaelHlinka.com 40 / 75 MichaelHlinka.com 23. If an investor wants to sell a security immediately, she should place a… a) day order. b) limit order. c) market order. d) stop-loss order. 24. How long is an order considered to be open if it is not specified? om a) Day b) Week c) Month d) Open until cancelled 25. At 9:20 before market opens, a pro order hits the trading desk to purchase.c 10,000 shares at $20 per share. Five minutes later – still before market open – a client order hits the trading desk to purchase 100 shares at $20 per share. ka Which of the following is correct? a) The client order will receive priority. b) The pro order will receive priority because it was received first. lin c) The pro order will receive priority because it is for a greater number of shares. d) The trader has the discretion about which order to execute first. H el ha ic M MichaelHlinka.com 41 / 75 MichaelHlinka.com Chapters 8 – 9, Test #1 – Answers 1.A 8 – 4. 2.B 8 – 4. 3.D 8 – 7/8. 4.B 8 – 9/10. Adjust the original purchase price by the terms of the split. Instead of buying om 200 shares at $20, think of it as buying 400 shares at $10. Therefore, when 200 shares are sold at $40, there is a $30 profit per share which amounts to $6,000. 5.C 8 – 9/10..c 6.C 8 – 10/11. 7.D 8 – 10/11. 8.D 9.A 8 – 13/15. 8 – 14/15. ka lin 10.D 8 – 21/23. 11.B 8 – 24. H 12.B 8 – 24. el 13.D 8 – 25. 14.C 9 – 3. ha 15.C 9 – 4. 16.B 9 – 5/7. The cost of the purchase was $950. Loan value is calculated based on the ic closing day’s price of $1.70: 500 x $1.70 x 20% = $170. Therefore, the investor must deposit margin of $780. M 17.A 9 – 5/7. The shares are now worth $1,100. Loan value is 50% of that, or $550. Because the loan value was previously $170, the margin surplus is the difference, or $380. 18.A 9 – 7/9. The original sale amount is 1,500 x $22 = $33,000. Margin required is 30% or $9,900. MichaelHlinka.com 42 / 75 MichaelHlinka.com 19.D 9 – 7/9. The new margin requirement is 130% x 1,500 x $24. The investor received $33,000 for the short sale and deposited an additional $9,900. Therefore, the margin shortfall is $3,900. 20.B 9 – 10. The sell price is $22. The buy price is $24. 1,500 shares traded which results in a $3,000 loss. om 21.A 9 – 10/11. 22.D 9 – 11. 23.C 9 – 14..c 24.A 9 – 15. 25.A 9 – 17. ka lin H el ha ic M MichaelHlinka.com 43 / 75 MichaelHlinka.com CSC VOLUME ONE: Chapters 8 – 9, Test #2 1. In Canada, which of the following receive “favourable” tax treatment? i) interest income ii) dividend income iii) capital gains a) i) only b) ii) only om c) i) & ii) only d) ii) & iii) only 2. Which of the following correctly places the dividend chronology in the correct order?.c a) pay date, record date, ex-dividend date, and cum-dividend date b) ex-dividend date, cum-dividend date, record date, and pay date c) cum-dividend date, ex-dividend date, record date, and pay date ka d) record date, ex-dividend date, cum-dividend date, and pay date 3. Subordinate voting shares… a) do not carry a right to vote. lin b) carry a right to vote only under limited circumstances. c) carry a right to vote, but another class of shares carries a greater voting right per share. d) carry a right to vote, subject to a limit or restriction on the number or H percentage of shares that can be voted by a person, company, or group. el 4. If a company has 30,000,000 million shares outstanding and is priced at $30 then announces a 3 for 1 split, which of the following would be true? ha a) there would be 30,0000,000 shares at a price of $90. b) there would be 90,000,0000 shares at a price of $30. c) there would be 10,000,000 shares at a price of $90. d) there would be 90,000,000 shares at a price of $10. ic 5. An investor purchased 500 shares of ABC Company at $12 per share. When the shares were trading at $27 per share, the company executed a 3 for 1 stock split. A month later when the shares were at $8, the investor sold 200 shares. What M would be her profit or loss on those 200 shares? a) $200 loss b) $200 profit c) $400 profit d) $800 profit MichaelHlinka.com 44 / 75 MichaelHlinka.com Please use the following information for Questions #6 & #7. 52 Weeks High Low Stock Div. High Low Close Change Volume $45.00 $18.20 RMD.50 20.05 $18.20 $18.20 –$2.25 250,000 6. What does the “Div.50” mean? a) The regular quarterly dividend is $.50. b) The regular annual dividend is $.50. om c) In the past twelve months, RMD has paid $.50 in dividends. d) The dividend is 50% of what it was in the previous year. 7. What does “Volume 250,000” mean? a) 250,000 trades were made the previous day..c b) 250,000 shares were traded the previous day. c) 125,000 shares were bought and 125,000 were sold. d) None of the above. ka 8. Under what circumstances do preferred shares receive voting privileges? a) Preferred shares routinely have voting privileges. lin b) Preferred shares receive voting privileges is they are convertible preferred shares. c) Preferred shares receive voting privileges after a stated number of preferred dividends have been omitted. d) Preferred shares never have voting privileges. H 9. Which of the following investment objectives do Canadian preferred shares meet for Canadian retail investors? el a) safety and income b) income and liquidity ha c) income and tax minimization d) liquidity and tax minimization 10. Which of the following Canadian indexes has a fixed number of securities? ic a) S&P/TSX Composite Index only b) S&P/TSX 60 Index only M c) S&P/TSX 60 Index and S&P/TSX Composite Index c) S&P/TSX 60 Index and S&P/TSX Venture Composite 11. The main gauge for measuring the investment performance of institutional investments in the United States is the… a) S&P 500. b) Dow Jones 30. c) S&P/TSX Composite. d) Dow Jones Industrial Average. MichaelHlinka.com 45 / 75 MichaelHlinka.com 12. An investor wants to have exposure to the French stock market. You would recommend that she invest in the… a) DAX. b) CAC 40. c) FTSE 100. d) Nikkei Stock Average. 13. What is the document that a potential margin client is required to obtain before om opening a margin account? a) New Account Application Form b) Margin Account Agreement Form c) Collateralized Margin Account Form d) Noncollateralized Margin Account Form.c 14. An investor buys 500 shares of an option-eligible security at $22. What is the margin requirement? ka a) $ 3,300 b) $ 5,500 c) $ 7,700 lin d) $11,000 15. Refer to Question #14: Assume the security subsequently rises to $25. If when the security was $22 the investor had exactly enough money in his/her account, what would his margin deficit or surplus be after the increase? H a) $ 750 deficit b) $1,050 surplus el c) $1,225 deficit d) $1,500 surplus ha 16. An investor has $1,200 in her account. She asks her broker to buy 1,200 shares of BCE @$28, an option-eligible security, in her margin account. What would the margin call be in this circumstance? ic a) $ 8,880 b) $10,080 c) $15,600 M d) $16,800 MichaelHlinka.com 46 / 75 MichaelHlinka.com 17. An investor purchased 1,000 shares of Regal Bank at $48. It is option eligible. She put down the minimum margin required and borrowed the rest. If Regal Bank shares increased to $50, she could… a) withdraw a maximum of $1,000 from her account; however she would be required to pay interest on that extra $1,000 in addition to the original $24,000 she borrowed. b) withdraw a maximum of $1,000 from her account; however she would not be required to pay interest on that extra $1,000 in addition to the om original $24,000 she borrowed. c) withdraw a maximum of $1,400 from her account; however she would be required to pay interest on that extra $1,400 in addition to the original $33,600 she borrowed. d) withdraw a maximum of $1,400 from her account; however she would not be required to pay interest on that extra $1,400 in addition to the.c original $33,600 she borrowed. 18. An investor short-sold 1,000 shares of a common stock at $18. What is the total ka amount of margin that must be maintained in the account? a) $ 9,000 b) $18,000 lin c) $23,400 d) $27,000 19. Referring to Q#18… if he closed the position when the shares were $16, what is the profit or loss? H a) $2,000 profit b) $2,000 loss el c) $16,000 profit d) $ 4,000 loss ha 20. What is the maximum length of time that a short sale position can be maintained? a) One month ic b) Six months c) Three years d) There is no strict time limit on short sales M 21. Traders generally prefer to confine short sales to companies… a) having a small number of shares outstanding that are widely held. b) having a large number of shares outstanding that are widely held. c) having a small number of shares outstanding that are not widely held. d) having a large number of shares outstanding that are not widely held. MichaelHlinka.com 47 / 75 MichaelHlinka.com 22. An investment dealer borrows shares from Smith’s account. The shares are sold, and held by Brown when the company declares a $.50 per share dividend. How much dividend income will Smith and Brown see on a per-share basis? a) Smith will receive $.50 and Brown will receive nothing. b) Smith will receive $.25 and Brown will receive $.25. c) Smith will receive nothing and Brown will receive $.50. d) Smith will receive $.50 and Brown will receive $.50. om 23. After a trade occurs… a) only the buyer receives a confirmation. b) only the seller receives a confirmation. c) both the buyer and the seller receive a confirmation. d) both the buyer and the seller receive a confirmation if they have.c requested for one in advance. 24. A client enters a limit order for the day, to buy 1,000 shares of ABC Company at ka $20.00. The lowest price it trades that day is $20.05. Therefore… a) the order automatically expires and the investor is not charged any commission. lin b) the order automatically expires and the investor is charged a nominal commission only. c) the order automatically renews the next day and the investor is not charged any commission. d) the order automatically renews the next day and the investor is H charged a nominal commission only. 25. The Professional (Pro) order rule is designed to… el a) ensure that pros get filled before clients. b) ensure that pros get filled at better prices than clients. ha c) ensure that clients get filled before pros. d) ensure that clients get filled at better prices than pros. ic M MichaelHlinka.com 48 / 75 MichaelHlinka.com Chapters 8 – 9, Test #2 – Answers 1.D 8 – 4. 2.C 8 – 5/6. 3.C 8 – 7. 4.D 8 – 9/10.
