csc - exam 1 - 2013

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2013-07-21 6:iew Attempt

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Title: Practice Exam 1 - Volume 1

Started: July 17, 2013 11:54 AM

Submitted: July 17, 2013 12:24 PM

Time spent: 00:29:56

Total score: 97/100 = 97% Total score adjusted by 0.0 Maximum possible score: 100

Done

1.

What is a feature of accrued interest?

Student

Response

Value Correct Answer Feedback

A. Calculatedusing thecurrentyield for abond.

B. Includedin themarketprice of abond.

C. Paid by

the sellerto thebuyer of abond.

D. Paid bythe buyerto theseller of abond.

100%

GeneralFeedback:

Accrued interest is the amount of interest built up during the previous holdingperiod. It is paid at the time of purchase from the buyer to the previous holder toensure the transaction between buyer and seller is equitable. Text reference:

Chapter 7: Fixed-Income Securities: Pricing and Trading.

Score: 1/1

2.

Regrowth Ltd. 10-year bonds, due April 15, 20XX, include the following provision: "Regrowthmust redeem a minimum of 5% of the issue on April 15 each year." Which feature does the

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Regrowth issue include?

Student

Response


A. Callable.

B. Purchasefund.

C. Retractable.

D. Sinkingfund.

100%

GeneralFeedback:

Some issuers must repay portions of their bonds for redemption before maturity,either by calling them on a fixed schedule of dates (via a sinking fund obligation) orby buying them in the secondary market when the trading price is at or below aspecified price (through a purchase fund). Some corporate bonds have a mandatorycall feature for sinking fund purposes. Sinking funds are sums of money that are setaside out of earnings each year to provide for the repayment of all or part of a debtissue by maturity. Text reference: Chapter 6: Fixed-Income Securities:

Features and Types.

Score: 1/1

3.

Which statement best describes the Standard and Poor's (S&P) 500 Composite Index?

Student

Response


A. Acapitalization-weightedindex inwhich largercapitalizationstock have agreater effecton the indexvalue.

100%

B. The indexlevel iscalculated by

adding theprices of 500stocks anddividing by aspeciallycalculateddivisoradjusting forsplits and

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dividends.

C. A market-weightedindex of stocks thattrade mostlyover-the-counter.

D. A price-weightedindex inwhich higherpriced stocksmay distortthe overallperformanceof the index.

GeneralFeedback:

Since the S&P 500 is weighted by market capitalization, more heavily weighted stockshave a greater effect on the value of the index. Text reference: Chapter 8: Equity

Securities: Common and Preferred Shares.

Score: 1/1

4.

What is the term for an investment order placed on behalf of the account of a partner or directorof a dealer member?

Student

Response


A. Exemptorder.

B. N-E order.

C. Preferentialorder.

D. Pro order. 100%

GeneralFeedback:

Pro orders are orders for the accounts of partners, directors, officers, shareholders,IAs and, in some cases, specified employees. Tickets for such orders must be clearlylabelled Pro or N-C (non-client) or Emp (employee) orders. Under the preferentialtrading rule, this type of order is executed after a client’s order if both orders

compete at the same price for the same security. Text reference: Chapter 9:Equity Securities: Equity Transactions.

Score: 1/1

5.

An investor owns 5,000 shares in a company at a current market price of $8 per share. The

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company subsequently declared a 2-for-1 stock split. Calculate the dollar value of the investor’sshares after the split.

Student

Response


A. $10,000

B. $40,000 100%

C. $80,000

D. $160,000

GeneralFeedback:

Current market price= 5000 X 8= $ 40,000Number of shares after a 2-for-1 stock split = 5000 X 2 = 10000Price per share after 2-for-1 stock split = $8é2 = $4Total dollar value of the investor`s shares after the split = 10,000 X $4 = $40,000.Text reference: Chapter 8: Equity Securities: Common and Preferred Shares.

Score: 1/1

6.

Who is responsible for providing liquidity on over-the-counter markets (OTC) by posting bid andask quotations?

Student

Response


A. Investmentdealers.

B. Marketmakers.

100%

C. Spreadtraders.

D. Transferagents.

GeneralFeedback:

In the OTC market, individual investors’ orders are not entered into the market ordisplayed on the computer system. Instead, dealers, who are acting as marketmakers, enter their bid and ask quotations. These market makers hold an inventoryof the securities in which they have agreed to “make a market.” They sell from thisinventory to buyers and add to the inventory when they acquire securities fromsellers. The market makers post their individual bid (the highest price the maker willpay) and ask (the lowest price the maker will accept) quotations. The willingness of

the market makers to quote bid and ask prices provides liquidity to the system. Textreference: Chapter 1: The Capital Market.

Score: 1/1

7.

What is one stated purpose of the Statement of Changes in Equity?

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Student

Response

Value Correct

Answer

Feedback

A. To be the linkbetween thestatement of comprehensiveincome and

the statementof financialposition.

100%

B. To record anynew issues of the company'sshares.

C. To report thesettlement of debt duringthe current

year.

D. To reportinterest paidduring theperiod.

GeneralFeedback:

The statement of changes in equity provides a link between the statement of comprehensive income and the statement of financial position. Text reference:

Chapter 12: Corporations and their Financial Statements.

Score: 1/1

8.

Leila sold short 1,000 common shares of Puddle at $19 per share, then immediately placed anorder to protect this position. Select the type of order Leila placed.

Student

Response


A. Limitorder.

B. Marketorder.

C. Stop buyorder.

100%

D. Stop lossorder.

GeneralFeedback:

Stop Buy Order: An order to buy a security only after it has reached a certain price.This type of order may be used to protect a short position or to ensure that a stock ispurchased while its price is rising. It is the opposite of a stop loss order. Text

reference: Chapter 9: Equity Securities: Equity Transactions.

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GeneralFeedback:

Escrowed shares serve as payment for properties, goods or services. Escrowedshares are shares held by an independent trustee in trust for its owner that cannot besold or transferred unless special approval is given. Text reference: Chapter 11:

Financing and Listing Securities.

Score: 1/1

11.

When trading derivatives, what is an appropriate basis for the underlying interest rate in an OTCinterest rate forward contract?

Student

Response


A. Theborrowingrate of theseller.

B. Theborrowingrate of thebuyer.

C. The yieldon amajorequityindex.

D. The yieldon aTreasurybill.

100%

GeneralFeedback:

In the OTC market, interest rate derivatives are generally based on well-defined andwell known floating interest rates, which are not easily manipulated by marketparticipants. Examples of such underlying rates assets include LIBOR or the LondonInterbank Offer Rate (the interest earned on Eurodollar deposits in London) and theyields on Treasury bills and Treasury bonds. Because these OTC derivatives are basedon an interest rate rather than an actual security, the contracts are settled in cash.Text reference: Chapter 10: Derivatives.

Score: 1/1

12.

Life insurance companies have historically been active in which market(s)?

i. Derivatives

ii. Mortgages

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14.

The following quote for a bond appears in the newspaper:

Calculate how much a client will pay if she wants to purchase a $20,000 denomination of thisbond. (Ignore any accrued interest.)

Student

Response


A. $18,920.00

B. $19,120.46

C. $20,860.00

D. $20,920.00 100%

GeneralFeedback:

The bond is purchased at the ask or 104.60. $20,000 x 104.6%= $20,920 Text

reference: Chapter 6: Fixed-Income Securities: Features and Types.

Score: 1/1

15.

What kind of inflation results from a positive output gap?

Student

Response


A. Cost-pushinflation.

B. Deflation.C. Demand-

pullinflation.

100%

D. Disinflation.

GeneralFeedback:

In general, a positive output gap occurs as the economy moves through an expansiontowards the peak. Output continues to expand, consumer income is rising, and thisleads to strong consumer demand for goods and services. However, this creates asituation whereby if companies can continue to operate well above normal capacity,they can raise prices in response to this strong demand. In this way, higher andcontinued consumer demand pushes inflation higher. This state of affairs is calleddemand-pull inflation. Text reference: Chapter 4: Economic Principles.

Score: 1/1

16.

What is a primary function of a financial intermediary?

Student Value Correct Answer Feedback

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Response

A. Arbitratedisputesbetweencustomersand financialinstitutions.

B. Assist in thetransfer of capital fromsavers tousers.

100%

C. Ensurefairness of securitiespricing.

D. Regulate thesettlement

dates onsecuritiestransactions.

GeneralFeedback:

Intermediaries are a key component of the financial system. The term “intermediary” is used to describe any organization that facilitates the trading or movement of thefinancial instruments that transfer capital between suppliers and users. Text

reference: Chapter 2: The Canadian Securities Industry.

Score: 1/1

17.

What type of order is entered when the client is willing to accept the trade only if the entireamount can be purchased at the same time?

Student

Response


A. All or noneorder.

100%

B. Any partorder.

C. Good tillcancelledorder.

D. Limitorder.

GeneralFeedback:

An order whereby the entire amount of stock must be bought or sold or no part of theorder will be executed is known as an ‘All or None (AON) order’. Text reference:

Chapter 9: Equity Securities: Equity Transactions.

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Score: 1/1

18.

A bond issued by a Canadian corporation and denominated in Pounds Sterling is traded on theinternational bond market. What type of bond is this?

StudentResponse


A. Domesticbond.

B. Eurobond.

C. Foreignbond.

0%

D. Globalbond.

GeneralFeedback: Eurobonds are issued in a foreign market and are denominated in a currency otherthan that of the market where the bonds are issued. They are issued in the Eurobondmarket or the international bond market and can be issued in any number of differentcurrencies. Text reference: Chapter 6: Fixed-Income Securities: Features and

Types.

Score: 0/1

19.

What effect does an improvement in worker productivity have on the level of gross domesticproduct (GDP)?

Student

Response


A. Constantduringperiods of populationgrowth.

B. Decrease.

C. Increase. 100%

D. Variable.GeneralFeedback:

Growth in GDP results from a variety of factors; among the more important is,increases in the capital stock. As more workers are provided with additionalequipment and as their skills have been improved with better training and education,individual productivity rises and the growth in GDP will increase. Text reference:

Chapter 4: Economic Principles.

Score: 1/1

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20.

Why do provincial securities administrators require underwriters to maintain a record of allpersons and companies to whom a preliminary prospectus has been sent?

Student

Response


A. A newprospectusmust be sentto recipients if the original isamended.

100%

B. Certificatesmust be sentto recipientswhen theissue isapproved.

C. Informationnot containedin theprospectuscan be addedat a latertime.

D. Securitiesadministratorswill knowwhere to send

the finalprospectus.

GeneralFeedback:

The sales staff is allowed to identify the security, its features and price (if determined), and is obligated to record names and addresses of individuals andcorporations who have requested and received a preliminary prospectus. If anyamendments to the preliminary prospectus are to be made, a copy of the amendedprospectus must be forwarded to all prospective purchasers that had received theoriginal copy.Text reference: Chapter 11: Financing and Listing Securities.

Score: 1/1

21.

What term refers to a senior security that has the primary entitlement to a company's assetsand earnings?

Student

Response


A. First 100%

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mortgagebond.

B. Subordinateddebenture.

C. Secondaryline of credit.

D. Preferredsecurities.

GeneralFeedback:

First mortgage bonds are the senior securities of a company, because they constitutea first charge on the company’s assets, earnings and undertakings before unsecuredcurrent liabilities are paid. Text reference: Chapter 6: Fixed-Income Securities:

Features and Types.

Score: 1/1

22.

Paul is a general partner in an organization that declared bankruptcy. What liability does Paul

have for the organization’s outstanding debts?

Student

Response


A. Liabilitylimited to hisoriginalinvestmentplusreinvestedprofits.

B. Liabilitylimited tothe amountof hisoriginalinvestment.

C. Liabilityproportionalto the totalinvestmentsof all of the

partners.

D. Personalliability forall debts andobligationsof theorganization.

100%

General The general partners are involved in the day-to-day operations and are personally

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Feedback: liable for all debts and obligations incurred in the course of business. Text

reference: Chapter 11: Financing and Listing Securities.

Score: 1/1

23.

Which section of a company’s financial statements includes such information as a description of its fixed assets, the various segments of the company’s operations, and whether the companyuses derivatives for hedging purposes?

Student

Response


A. Auditor’sreport.

B. Notes tofinancialstatements.

100%

C. Statement of Cash Flows.

D. Supplementalinformationreport.

GeneralFeedback:

There is a considerable amount of detailed information which, in the shareholders’ interest, needs to be disclosed. If shown directly in the financial statementsthemselves, it would result in their becoming so cluttered as to be unreadable. Thisinformation is usually shown in a series of notes to the financial statements. It isessential for an investor to have an understanding of the notes as they provideimportant details about the company’s financial condition. Items in a company’s

notes include the company’s statement of compliance with IFRS, the accountingpolicies used, descriptions of fixed assets, share capital and long-term debt, andcommitments and contingencies. It is also here that a potential investor should lookto ascertain whether the company uses derivatives for hedging or other purposes.Text reference: Chapter 12: Corporations and their Financial Statements.

Score: 1/1

24.

What impact does a company face when it increases the amount of financial leverage on itsbalance sheet?

Student

Response


A. A higherreportedlevel of cashflow used topay

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dividends.

B. A higherreportedlevel of debt.

100%

C. A lowerreportedlevel of interestexpense.

D. A lowerreportedafter-taxreturn onshareholders’ equity.

GeneralFeedback:

If companies believe they can earn a greater return on cash invested in theirbusiness than it would cost to borrow money, they can increase the return on

shareholders’ equity by borrowing money. This is what is meant by financial leverage.Text reference: Chapter 6: Fixed-Income Securities: Features and Types.

Score: 1/1

25.

Ruth is a retired client of yours. She is thinking of investing in a company that she believes willdo very well in the future. However, she only needs a small amount of steady income tomaintain her lifestyle. What type of the company’s securities would you recommend?

Student

Response


A. Floating ratepreferredshares

B. Participatingpreferredshares.

100%

C. Restrictedcommonshares.

D. Subordinateddebentures.

GeneralFeedback:

Participating preferred shares have certain rights to a share in the earnings of thecompany over and above their specified dividend rate. Text reference: Chapter 8:

Equity Securities: Common and Preferred Shares.

Score: 1/1

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26.

A bond is trading at 96.77. The yield of the bond rises by 1.5%. Ignoring any otherconsiderations, determine the impact this will have on the bond's price.

Student

Response


A. Decrease. 100%

B. Increase.

C. Goodvalue.

D. Slightmovement,either upor down,dependingon marketconditions.

GeneralFeedback:

The most important bond pricing relationship to understand is the inverse relationshipbetween bond prices and interest rates (or bond yields)—as interest rates rise, bondprices fall and as interest rates fall, bond prices rise. It is also important to recognizethat interest rates and bond yields are often used interchangeably. Each represents arate of return on an investment. Therefore, as interest rates rise, the yields oncompeting investments must also rise, and vice versa. As we saw in the section onyield calculations, bond prices fall when bond yields rise. Text reference: Chapter

7: Fixed-Income Securities: Pricing and Trading.

Score: 1/1

27.

How are stock dividends treated for tax purposes when paid to Canadian resident taxpayers?

Student

Response


A. Capitalgains inthe yearthedividend ispaid.

B. Capitalgainswhen theshares aresold.

C. Ordinaryincome inthe year

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thedividend ispaid.

D. Same ascashdividendsin the yearthe

dividend ispaid.

100%

GeneralFeedback:

Since stock dividends are treated as regular cash dividends for tax purposes, manyinvestors, given the option, elect to receive dividends in cash. Text reference:

Chapter 8: Equity Securities: Common and Preferred Shares.

Score: 1/1

28.

What describes the illegal practice of a broker confirming a stock trade where no actualtransaction actually took place?

Student

Response


A. Bucketing. 100%

B. Frontrunning.

C. Materialchange.

D. Windowdressing.

GeneralFeedback:

Confirming a transaction where no trade has been executed is known asbucketing.Text reference: Chapter 3: The Canadian Regulatory Environment.

Score: 1/1

29.

What is one way a bond index is used by an investor?

Student

Response


A. Benchmarktheminimumreturnexpected onstocks.

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B. Forecastfuture bondyields.

C. Review theperformanceof a bondportfoliomanager.

100%

D. Measurechanges infixed-income riskduringvariouseconomiccycles.

GeneralFeedback: A bond index is used as a guide to the performance of the overall bond market or asegment of that market. Also, it used as performance measurement tool, to assessthe performance of bond portfolio managers. Text reference: Chapter 7: Fixed-

Income Securities: Pricing and Trading.

Score: 1/1

30.

If a bond with a $10,000 face value is purchased at a price of 97, what does this mean for aninvestor buying the bond?

StudentResponse


A. The bondwillgenerate acapitalgain if held tomaturity.

100%

B. The bondwill

mature forless thanits facevalue.

C. The bondwillproducelowercoupon

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B. OnJanuary3rd andJuly 3rdeach year.

C. On March15th andSeptember15th eachyear.

100%

D. OnSeptember15th eachyear.

GeneralFeedback:

Most bonds pay the coupon twice a year, or semi-annually. Text reference:

Chapter 7: Fixed-Income Securities: Pricing and Trading.

Score: 1/1

33.

Which financial statement details how a company’s financial position has changed from oneperiod to the next?

Student

Response

Value Correct

Answer

Feedback

A. Statement of Cash Flows.

B. Statement of Changes inEquity.

C. Statement of ComprehensiveIncome.

D. Statement of FinancialPosition.

0%

General

Feedback:

While the statement of financial position shows a company’s financial position at a

specific point in time and the statement of comprehensive income summarizes thecompany’s operating activities for the year, neither statement shows how thecompany’s financial position changed from one period to the next. The statement of

cash flows fills this gap between the statement of financial position and thestatement of comprehensive income by providing information about how thecompany generated and spent its cash during the year. Text reference: Chapter

12: Corporations and their Financial Statements.

Score: 0/1

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34.

How are reinvested dividends taxed?

Student

Response


A. As acapitalgain whenthe sharesare sold.

B. As acapitalgain whenthe sharesarereceived.

C. As anordinarycashdividendwhenreceived.

D. As aregularcashdividendwhen theshares are

sold.

0%

GeneralFeedback:

Reinvested dividends are taxable to the shareholder as ordinary cash dividends eventhough the dividends are not received as cash. Text reference: Chapter 8: Equity


Score: 0/1

35.

In what circumstances might the Bank of Canada implement a special purchase and resaleagreement (SPRA)?

Student

Response


A. Overnightrate isabove thetarget of theoperating

100%

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band.

B. Overnightrate is nearthe bottomof themonetaryconditionsindex.

C. Prime rateis abovethe targetof theTreasurybill rate.

D. Spreadbetweengovernmentshort-term

and long-term bondsnarrows.

GeneralFeedback:

Special Purchase and Resale Agreements (commonly referred to as SPRAs or “Specials”) are used by the Bank of Canada to relieve undesired upward pressure onovernight financing rates. If overnight money is trading above the target of theoperating band, the Bank may believe that the higher rate will dampen economicactivity. To combat this, the Bank intervenes and offers to lend at the upper limit of the operating band. Text reference: Chapter 5: Economic Policy.

Score: 1/1

36.

An investor wrote 3 DEF August 35 covered calls at $3.25. DEF shares subsequently rise to $40,and the writer is assigned. Calculate the amount the writer receives in total as a result of thisinvestment strategy (ignore any other costs or considerations).

Student

Response


A. $9,525

B. $11,475 100%

C. $12,000

D. $12,975

GeneralFeedback:

3 X 100 X $ 3.25 = $975300 x $35 = $10 500The amount the writer receives = 975 + 10 500 = $11,475 Text reference:

Chapter 10: Derivatives.

Score: 1/1

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37.

What type of market do most bonds and debentures in Canada trade?

Student

Response


A. Auctionmarkets.

B. Dealermarkets.

100%

C. Exchangemarkets.

D. Primarymarkets.

GeneralFeedback:

Almost all bonds and debentures are sold through dealer markets. Text reference:

Chapter 1: The Capital Market.

Score: 1/1

38.

What is one of the risks when using an OTC derivative that is not a risk with exchanged-tradedderivatives?

Student

Response


A. Contract toostandardized.

B. Default risk. 100%

C. Increasedvolatility.

D. Uncertaindeliverydates.

GeneralFeedback:

A downside to the private nature of OTC derivatives is that default or credit risk is amajor concern. Default risk is the risk that one of the parties to a derivative contractcannot meet its obligations to the other party. Text reference: Chapter 10:

Derivatives.

Score: 1/1

39.

The Philips curve is best characterized by which of the following statements?

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Student

Response

Value Correct

Answer

Feedback

A. Inflation andinterest ratesmove in theoppositedirection.

B. Inflation andinterest ratesmove in thesamedirection.

C. Inflation andunemploymentlevels move inthe oppositedirection.

100%

D. Inflation andunemploymentlevels move inthe samedirection.

GeneralFeedback:

The potential cost of disinflation is captured by the Phillips curve, which says thatwhen unemployment is low, inflation tends to be high, and when unemployment ishigh, inflation tends to be low. Text reference: Chapter 4: Economic Principles.

Score: 1/1

40.

Which method of depreciations deducts a larger dollar amount in the first few years than the lastfew years?

Student

Response


A. Declining-balancemethod.

100%

B. Equalamounts

method.

C. Increasingamountmethod.

D. Straight-linemethod.

General There are several methods by which these amounts can be allocated to each

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Feedback: accounting period. The declining-balance method applies a fixed percentage, ratherthan a fixed dollar amount, to the outstanding balance to determine the expense tobe charged in each period. This amount is deducted from the capital asset balance todetermine the amount against which the percentage will be applied in the subsequentperiod – thus the term declining balance. Text reference: Chapter 12:

Corporations and their Financial Statements.

Score: 1/1

41.

What type of corporate bond is secured by a pledge of securities rather than a pledge of realproperty?

Student

Response


A. Collateraltrust bond.

100%

B. Convertiblebond.

C. Mortgagebond.

D. Participatingbond.

GeneralFeedback:

A collateral trust bond is one that is secured, not by a pledge of real property, as in amortgage bond, but by a pledge of securities, or collateral. Text reference: Chapter

6: Fixed-Income Securities: Features and Types.

Score: 1/1

42.

Which yield calculation looks only at recent market price and cash flows, but not the amountoriginally invested?

Student

Response


A. Currentyield.

100%

B. Fairmarketyield of abond.

C. Treasurybill yield.

D. Yield tomaturity.

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GeneralFeedback:

Current yield looks only at cash flows and the current market price of the investment,not at the amount that was originally invested. Text reference: Chapter 7: Fixed-


Score: 1/1

43.

Select the correct statements about margin accounts.

I. Margin calls must be paid without delay.

II. Margin increases market risk.

III. The dealer can only sell securities from the account with the client’s consent.

IV. Loan interest must be repaid by the client to the dealer.

StudentResponse Value Correct Answer Feedback

A. I, II.

B. I, II andIV.

100%

C. I, III.

D. I, II, IIIand IV.

GeneralFeedback:

All the statements are correct with the exception of statement III. In a marginaccount, the dealer can sell securities from the account to secure its loan without the

client’s consent. If the client fails to meet a margin call, the dealer can sell theclient’s securities without notice. Text reference: Chapter 9: Equity Securities:

Equity Transactions.

Score: 1/1

44.

Which statement best describes structural unemployment?

Student

Response

Value Correct

Answer

Feedback

A. The share of unemploymentthat existsbecauseworkers lackthe necessaryskills.

100%

B. The share of

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unemploymentthat occurs asthe economymovesthrough thebusinesscycle.

C. The share of

unemploymentthat resultsfromproductivityincreases.

D. The share of unemploymentthat resultsfrom peopleentering andleaving the

workforce.

GeneralFeedback:

Structural unemployment occurs when workers are unable to find work or fillavailable jobs because they lack the necessary skills, do not live where jobs areavailable, or decide not to work at the wage rate offered by the market. This type of unemployment is closely tied to changes in technology, international competition andgovernment policy.Text reference: Chapter 4: Economic Principles.

Score: 1/1

45.

Which economic theory states that active government policy can play an important role inincreasing economic output?

Student

Response


A. Keynesiantheory.

100%

B. Monetaristtheory.

C. RationalExpectations

theory.

D. Supply-sidetheory.

GeneralFeedback:

Keynesian economics advocates the use of direct government intervention as ameans of achieving economic growth and stability. Text reference: Chapter 5:

Economic Policy.

Score: 1/1

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46.

Ignoring other considerations, what effect does the current account balance generally have on anation’s exchange rate?

Student

Response


A. A currentaccountdeficitputsupwardpressureon theexchangerate.

B. A current

accountsurplusputsupwardpressureon theexchangerate.

100%

C. A currentaccountsurplusputs

downwardpressureon theexchangerate.

D. Thecurrentaccountbalancedoes notaffect the

exchangerate.

GeneralFeedback:

A country with a current account deficit is spending more than it is earning and mustborrow funds to make up the difference. In effect, this means the deficitcountry isconstantly demanding more foreign currency than it receives through its exports, andsupplying more domestic currency than the rest of the world demands for itsproducts. This excess demand for foreign currency puts downward pressure on thedomestic exchange rate. This occurs until domestic exports or assets are cheapenough to attract foreigners and imports, or foreign assets are too expensive to

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attract domestic interests. Text reference: Chapter 4: Economic Principles.

Score: 1/1

47.

Recommend why an investor would write an equity put option.

StudentResponse


A. To earnincome.

100%

B. To havethe right tosell theunderlyingstock.

C. To limit hislossesfrom adecline intheunderlying.

D. To profitfromleverage incase of priceincrease of the

underlying.

GeneralFeedback:

Investors write put options primarily for the income they provide. The income, in theform of the premium, is the writer’s to keep no matter what happens to the price of the underlying asset or what the buyer eventually does. Text reference: Chapter

10: Derivatives.

Score: 1/1

48.

Which economic theory states that non-interventionist government policy will help the economy

achieve a stable path of growth and prosperity?

Student

Response


A. Fiscaltheory.

B. Keynesiantheory.

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C. Monetaristtheory.

100%

D. RationalExpectationstheory.

GeneralFeedback:

Monetarist theory suggests that the economy is inherently stable, with its own self adjusting mechanism that automatically moves the economy to a stable path of

growth. Monetarists argue against the use of active monetary or fiscal policy andbelieve the central bank should simply expand the money supply at a rate equal tothe economy’s long-term growth rate. Text reference: Chapter 5: Economic

Policy.

Score: 1/1

49.

Select the indicator that suggests the economy is approaching the peak phase of the businesscycle?

Student

Response


A. Inflation isrising.

100%

B. Inventoriesaredepleted.

C. Interestrates aredropping.

D. Stockprices areincreasing.

GeneralFeedback:

The top of the business cycle is called a peak. The peak is characterised by manyactivities such as labour and product shortages that cause wages to increase andinflation to rise. Inflation also rises because during the expansion phase into thepeak, the demand for goods begins to outstrip supply and prices on productsthroughout the economy begin to rise. Text reference: Chapter 4: Economic

Principles.

Score: 1/1

50.

Select the trading system that allows a brokerage firm to bypass the exchanges and act as anagent bringing buyers and sellers together.

Student

Response


A. Alternative 100%

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TradingSystems.

B. CanadianUnlistedBoard Inc.

C. CanPx.

D. Quotation

and TradeReportingSystems.

GeneralFeedback:

Alternative trading systems (ATSs) are privately owned computerized tradingfacilities that match buy and sell orders for securities traded outside of recognizedexchanges. ATSs can be owned by individual brokerage firms or by groups of brokerage firms. These systems compete with the exchanges because a brokeragefirm operating an ATS can match orders directly from its own inventory, or act as anagent in bringing buyers and sellers together, thus bypassing the stock exchange.Text reference: Chapter 1: The Capital Market.

Score: 1/1

51.

What term refers to a bond that is secured by real property, such as office buildings?

Student

Response


A. Collateraltrustbond.

B. Equipmenttrustcertificate.

C. Mortgagebond.

100%

D. Purchasefund bond.

GeneralFeedback:

A mortgage is a legal document containing an agreement to pledge land, buildings orequipment as security for a loan and entitling the lender to take over ownership of these properties if the borrower fails to pay interest or repay the principal when it is

due. Text reference: Chapter 6: Fixed-Income Securities: Features and Types.Score: 1/1

52.

If an individual has 2 personal accounts and 1 account in trust for a minor child, how are theseaccounts evaluated by the Canadian Investor Protection Fund (CIPF)?

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Ignoring any other considerations, calculate the most an investor should pay for the bond.

Student

Response


A. $28.50

B. $95.00

C. $100.00

D. $123.50 100%

GeneralFeedback:

95 + 28.5 = $123.50 Text reference: Chapter 7: Fixed-Income Securities:

Pricing and Trading.

Score: 1/1

54.

Where do dividend payments made to company shareholders appear in the Statement of Cash

Flows?

Student

Response


A. Undercapitalspendingactivities.

B. Underearningsactivities.

C. Underfinancingactivities.

100%

D. Underinvestingactivities.

GeneralFeedback:

Financing activities involve transactions used to finance the company and include theissue of new shares, new debt or the payment of dividends. Text reference:

Chapter 12: Corporations and their Financial Statements.

Score: 1/1

55.

GHI Co. declared a reverse stock split. Determine the impact this will have on its cash position.

Student

Response


A. Decrease

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in cashposition.

B. Decreasein cashpositionbut onlyafter thereverse

split isfinalized.

C. No changein cashposition.

100%

D. Increasein cashposition.

General

Feedback:

If a reverse split of one new share for ten old were implemented, a shareholder

owning 100 shares of stock would own only 10 new shares after the reverse split. If the shares were selling at $0.25 before the reverse split, the new shares wouldprobably trade near $2.50 per share. The total dollar value of the holdings would notbe affected: $0.25 ! 100 shares pre consolidation = $2.50 ! 10 shares after theconsolidation. Text reference: Chapter 8: Equity Securities: Common and

Preferred Shares.

Score: 1/1

56.

Maurice is considering the purchase of a Nova Scotia Power Inc. 5.75% bond due March 15,

2025. If Maurice purchases this bond, list the 3 variables he should use to calculate how muchaccrued interest is payable.

Student

Response


A. Theprincipalamount,the couponrate, andthe timeperiodbetweencouponpaymentandsettlement.

100%

B. Theprincipalamount,

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the yield tocall, andthe term tomaturity.

C. Thepurchaseprice, thecurrent

yield, andthe term tomaturity.

D. Thepurchaseprice, theyield tomaturity,and thetime periodbetweencouponpaymentandsettlement.

GeneralFeedback: The amount of accrued interest is found by using three numbers:

The principal amount

The coupon rate

The time period from the day after the previous interest payment date up to

and including the day of settlement.

Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading.

Score: 1/1

57.

What is a characteristic of a Government of Canada marketable bond?

Student

Response


A. Cashableat full parvalue.

B. Price doesnot reactto interestratechanges.

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C. Maximumpurchaseamountperindividual.

D. Tradablein the

secondarymarket.

100%

GeneralFeedback:

The Government of Canada issues marketable bonds in its own name. These issuesare called marketable bonds because, as well as having a specific maturity date and aspecified interest rate, they are transferable, which means that they may be traded inthe market. Text reference: Chapter 6: Fixed-Income Securities: Features and

Types.

Score: 1/1

58.

An investor placed a buy order for 10,000 shares of BMX Inc. with instructions to automaticallycancel the order if it is not filled by the end of the third trading day. What kind of order is this?

Student

Response


A. All or noneorder.

B. Any partorder.

C. Goodthroughorder.

100%

D. Good tillcancelledorder.

GeneralFeedback:

Good Through Order: An order to buy or sell that is good for a specified number of days and then automatically cancelled if it has not been filled by the end of thetrading session on the date specified in the order. Text reference: Chapter 9:

Equity Securities: Equity Transactions.

Score: 1/1

59.

In what 3 ways does the exchange-traded derivatives market differ from the over-the-counter(OTC) derivatives market?

Student

Response

Value Correct

Answer

Feedback

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A. Clearinghouseperformanceguarantee,standardization,and liquidity.

100%

B. Clearinghouseperformanceguarantee,contract variety,and privacy.

C. Contractvariety,liquidity, andmandatoryphysicalsettlement atexpiration.

D. Standardization,

privacy, andmarking-to-market of dailyprofits andlosses.

GeneralFeedback:

Clearinghouses, which are set up by exchanges to ensure that markets operateefficiently, guarantee the financial obligations of every party and contract. Theclearing corporation becomes, in effect, the buyer for every seller and the seller forevery buyer. Standardization allows users to offset their contracts prior to expirationand provides the backing of a clearinghouse. Text reference: Chapter 10:

Derivatives.

Score: 1/1

60.

Marjorie wants to purchase preferred shares in a non-registered account and is seeking aninvestment that has the potential of deferring tax. If Marjorie does not need a regular stream of income, recommend her best investment option.

Student

Response


A. Cumulativepreferredshares.

B. Deferredpreferredshares.

100%

C. Participatingpreferredshares.

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D. Votingpreferredshares.

GeneralFeedback:

Deferred preferred shares allow investors to defer taxes paid on income earned untila later date and are attractive to investors who do not have an immediate need forregular income. The shares are also attractive for investors who want to receivecompounded growth in a registered account, such as an RRSP, as taxes are deferred

to a later period.Text reference: Chapter 8: Equity Securities: Common and Preferred Shares.

Score: 1/1

61.

What is one benefit of preferred shares that is not provided by common shares?

Student

Response


A. Greaterpotential forcapitalappreciation.

B. Preferentialdividendpayments.

100%

C. Prior claimon companyassetsbeforebondholders.

D. Votingrights.

GeneralFeedback:

Preferred shareholders are usually entitled to a fixed dividend payment subject to thediscretion of the Board of Directors. Since most preferred shares can be consideredfixed-income securities, they do not offer, from an investment standpoint, the samepotential for capital appreciation that common shares provide. Should interest ratesdecline, the preferred will increase in price, much like a bond; but good corporateearnings will have no effect on the dividend rate or equity allocation. Thus, thedividend rate is of prime importance to the preferred shareholder. Text reference:

Chapter 8: Equity Securities: Common and Preferred Shares.Score: 1/1

62.

If the Bank of Canada's operating band is 4.5% to 5.0%, and the overnight rate is 5.2%,recommend what the Bank of Canada should do.


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Response

A. Changethe targetrange to4.8% to5.3%.

B. Raise thebank rateto 5.3%.

C. Offer toborrowmoneyfromfinancialinstitutionsat 4.5%overnight.

D. Offer tolendmoney tofinancialinstitutionsat 5.0%overnight.

100%

GeneralFeedback:

The Target for the Overnight Rate is the upper limit of the operating band- 5% in thisexample. Special Purchase and Resale Agreements (commonly referred to as SPRAsor “Specials”) are used by the Bank of Canada to relieve undesired upward pressureon overnight financing rates. If overnight money is trading above the target of the

operating band, the Bank may believe that the higher rate will dampen economicactivity. To combat this, the Bank intervenes and offers to lend at the upper limit of the operating band. Text reference: Chapter 5: Economic Policy.

Score: 1/1

63.

What is the term for an investment order in which the client will accept all stock in odd, brokenor board lots up to the full amount of the order?

Student

Response


A. Any partorder.

100%

B. All or noneorder.

C. At themarketorder.

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D. Openorder.

GeneralFeedback:

Any Part Order: The exact opposite of an all or none order in which the client willaccept all stock in odd lot or standard trading units up to the full amount of the order.Text reference: Chapter 9: Equity Securities: Equity Transactions.

Score: 1/1

64.

Which of the following statements is true regarding short selling?

Student

Response


A. The shortsellerbelievesthe shares

willincrease inprice.

B. The shortsellercannot beforced toclose outtheposition.

C. The short

seller mayhavedifficultyborrowingtheshares.

100%

D. The shortsellermust closeout thepositionbefore the

end of themonth.

GeneralFeedback:

There can be difficulties in borrowing a sufficient quantity of the security sold short tocover the short sale. If the short seller’s dealer finds at some point that there is noreplacement stock it can borrow to maintain or carry a client’s short position, thenthe client must buy the necessary shares and cover the short sale. This has to bedone whether the short seller wants to buy back the shorted security or not, andregardless of the prevailing market price of the shorted security. The short seller

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believes the price of the shares will decline. Text reference: Chapter 9: Equity

Securities: Equity Transactions.

Score: 1/1

65.

In which of the following activities does the Investment Industry Association (IIAC) of Canada

participate?

Student

Response


A. It monitorsthe financialcomplianceof itsmembers.

B. It monitors

tradingactivities of itsmembers.

C. It overseestheeducation of theemployeesof members.

D. It

representsthe views of its membersto thegovernment.

100%

GeneralFeedback:

The IIAC is a member-based professional association that represents the interests of market participants. The membership base consists of a broad cross-section of thesecurities industry, including full service securities firms, institutional and retailboutique firms, and discount brokerages. The IIAC provides support and services thatcontribute to the success of their members. It also represents the investmentindustry’s views and interests to federal and provincial governments and their

agencies, and to other SROs in such areas as securities and capital marketslegislation and regulation and fiscal and monetary policy. Text reference: Chapter

3: The Canadian Regulatory Environment.

Score: 1/1

66.

What is the best environment to own variable-rate preferred shares?

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Feedback: companies whose boards of directors have for one reason or another decided not toseek stock exchange listing for one or more issues of their equities. The unlistedmarket does not set listing requirements for the stocks traded on its system (hencethe term “unlisted market”) nor does it attempt to regulate the companies. Many of the stocks sold on the unlisted market are more speculative, and in most cases offerlower liquidity, than listed securities. Text reference: Chapter 1: The Capital

Market.

Score: 1/1

68.

Select the situation that might cause the retained earnings of a company to increase in futureyears, all else being equal.

Student

Response


A. New shares

are issued.

B. The boardof directorscuts thedividendrate.

100%

C. Thecompanyauthorizesa 2-for-1share split

on alloutstandingcommonshares.

D. The price of thecommonshares isexpected torise overthe nextseveral

years.

GeneralFeedback:

Retained earnings are profits earned over the years that have not been paid out toshareholders as dividends. These retained profits accrue to the shareholders, but thedirectors have decided for the present time to reinvest them in the business.Retained earnings provides a record of the total comprehensive income kept in thebusiness year after year. Text reference: Chapter 12: Corporations and their

Financial Statements.

Score: 1/1

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69.

Calculate the yield on a 182-day Government of Canada Treasury bill purchased at a price of 97.50.

Student

Response


A. 4.95%

B. 5.01%

C. 5.07%

D. 5.14% 100%

GeneralFeedback:

(100-97.5)/97.5 x 365/182 x 100= 5.14% Text reference: Chapter 7: Fixed-


Score: 1/1

70.

What is an example of a business cycle leading indicator?

Student

Response

Value Correct

Answer

Feedback

A. GrossDomesticProduct.

B. Housing starts. 100%

C. Private sectorplant andequipmentspending.

D. Unemploymentrate.

GeneralFeedback:

Housing starts are a leading indicator because it signals confidence in employment,income levels and the ability of consumers to spend on such items as appliances,furniture, and other household ‘big ticket’ items and these purchases have a broader

positive impact over the entire economy. The unemployment rate is a laggingindicator, GDP is a coincident indicator, and private sector spending is a coincidentindicator. Text reference: Chapter 4: Economic Principles.

Score: 1/1

71.

How could Delia use options to purchase stock at a price lower than the current market price?

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Student

Response


A. Exercisean in-the-moneyput.

B. Exercise

an out-of-the moneycall.

C. Write acash-securedput.

100%

D. Write acoveredcall.

GeneralFeedback:

Some investors write cash-secured puts as a way to buy the stock at an effectiveprice that is lower than the current market price. The effective price is equal to thestrike price minus the premium received. Text reference: Chapter 10:

Derivatives.

Score: 1/1

72.

What decision is at the sole discretion of the board of directors?

Student

Response


A. Appointmentof anindependentauditor.

B. Appointmentof directors

of thecorporation.

C. Compositionof theboard.

D. Declarationof dividends.

100%

General Directors are normally responsible for the appointment and supervision of officers

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the AGM.

B. Send aletter tothe Boardof Directorsdirectly,specifying

hischoices.

C. Send hiswife toattend theAGM witha letterspecifyinghischoices.

D. Vote onlyif heattendsthe AGMhimself.

GeneralFeedback:

A proxy is a power of attorney given by a shareholder that gives a designated personthe authority to vote the shareholder’s stock at a shareholders’ meeting. Text

reference: Chapter 11: Financing and Listing Securities.

Score: 1/1

75.

Rita, a client of DAS Inc., invests in and receives a prospectus for an IPO on Tuesday, June 7.After reading the prospectus that evening, she returns to DAS on June 8 and demands a refundof the money she invested June 7. What statutory right is Rita invoking?

Student

Response


A. Right of action fordamages.

B. Right of continuousdisclosure.

C. Right of rescission.

D. Right of withdrawal.

100%

General The right of withdrawal gives the purchaser the right to withdraw from an agreement

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Feedback: to purchase securities within two business days after the deemed receipt of thecompany’s prospectus. Text reference: Chapter 3: The Canadian Regulatory

Environment.

Score: 1/1

76.

Which statement is correct with respect to jurisdiction of incorporation?

Student

Response


A. A federallyincorporatedcorporationmust obeyall provinciallaws unlessthey

disagreewith federallaws.

100%

B. Allcorporationsmust beregisteredfederally asthey have topay federaltax.

C. It doesn'tmatterwhere youincorporatethecompany asall laws arethe same inevery jurisdiction.

D. Onlycompanies

registeredfederallyrequiredirectors tobe Canadianresidents.

GeneralFeedback:

Once a decision has been made to incorporate, the jurisdiction of incorporation mustbe selected. In most cases the choice will be whether to incorporate under the laws of

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the province where the corporation’s chief place of business will be located or toincorporate federally under the Canada Business Corporations Act (CBCA).Aprovincially incorporated corporation can carry on business in the province of incorporation, but may need a further licence or registration to carry on business inother provinces. A federally incorporated corporation is subject to the laws of generalapplication in a province and may have to register there, but no provincial law maydiscriminate against a federal corporation so as to deprive it of the powers conferredon it by the federal government. Text reference: Chapter 11: Financing and

Listing Securities.Score: 1/1

77.

In which financial statement do companies show outsiders’ non-controlling interest holdings insubsidiary companies?

Student

Response

Value Correct

Answer

Feedback

A. Statement of Cash Flows.

B. Statement of Changes inEquity.

C. Statement of ComprehensiveIncome.

D. Statement of FinancialPosition.

100%

GeneralFeedback:

Non-controlling interest appears when a company uses consolidated financialstatements. Consolidated means that the company combines all the assets, liabilitiesand operating accounts of the parent company (Statement of Financial Position) withthose of its subsidiaries into a single joint statement when a company owns morethan 50% of a subsidiary. Even if the parent company owns less than 100% of asubsidiary’s stock, all of the assets and liabilities are combined in the consolidatedfinancial statements. To compensate, that part of the subsidiary not owned by theparent company is shown in the consolidated statement of financial position as non-

controlling interest . Text reference: Chapter 12: Corporations and their

Financial Statements.

Score: 1/1

78.

An investor purchased a forward on Canadian dollars and his gain was $50,000. Assuming thatthe forward has an underlying asset of $1,000,000 Canadian dollars, what was the loss for theinvestor on the other side of the forward contract?


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Response

A. $0

B. $50,000 100%

C. $950,000

D. $1,000,000

General

Feedback:

Derivatives can be considered a zero-sum game. In other words, aside from

commission fees and other transaction costs, the gain from an option or forwardcontract by one counterparty is exactly offset by the loss to the other counterparty:every dollar gained by one party represented a dollar lost by the counterparty on theother side of the contract. Text reference: Chapter 10: Derivatives.

Score: 1/1

79.

What is the term for an investment order that becomes effective as a market sell order when theprice of a standard trading unit of stock trades at or below a stated limit?

Student

Response


A. Goodthroughorder.

B. Good tillcancelledorder.

C. Stop buy

order.

D. Stop lossorder.

100%

GeneralFeedback:

Stop Loss Order: An order to sell a security when the price of one standard tradingunit of the security declines to or falls below a certain amount, thus limiting the lossor protecting a paper profit. Stop loss orders become market orders when the stopprice is reached. Text reference: Chapter 9: Equity Securities: Equity

Transactions.

Score: 1/1

80.

Where on the Statement of Financial Position will short-term borrowings, taxes payable andtrades payable, appear?

Student

Response


Current 100%

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A. liabilities.

B. Deferredpayments.

C. Intangibleassets.

D. Long-termdebt.

GeneralFeedback: Common types of current liabilities are:

Current portion of long-term debt due in one year.

Taxes payable to the government in the near term.

Trade payables for unpaid bills for raw materials, supplies and the like.

Short-term borrowings from financial institutions.

Text reference: Chapter 12: Corporations and their Financial Statements.

Score: 1/1

81.

NorJet Corp. is experiencing major financial difficulties and will be restructured. Two people willtake control of the business through a trust until the company can overcome its difficulties. Whatis the term for this type of trust?

StudentResponse


A. Treasurytrust.

B. Incometrust.

C. Proxytrust.

D. Votingtrust.

100%

GeneralFeedback:

A corporation that is undergoing a restructuring due to financial difficulties may beplaced under the control of a few individuals through a voting trust. The voting trustis usually put into effect for specific periods of time, or until certain results have beenachieved. Text reference: Chapter 11: Financing and Listing Securities.

Score: 1/1

82.

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What does time value represent in an option premium?

Student

Response


A. Itrepresentshow many

days leftuntilmaturity.

B. Itrepresentsthedifferencebetweenthe strikeprice andthe marketprice of the

underlyingsecurity.

C. Itrepresentsthe spreadthat theoption’smarketmakerdemandsfor acting

as themarketmaker.

D. Itrepresentsthevolatilityanduncertaintyof the priceof the

underlyingsecurity.

100%

GeneralFeedback:

The amount that an option is trading above its intrinsic value is known as the option’stime value. Time value represents the value of uncertainty. Text reference:

Chapter 10: Derivatives.

Score: 1/1

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due June 1, 2014, at a price of $105.60. The purchase settled 30 days after the last couponpayment. Calculate the amount of accrued interest this investor will pay.

Student

Response


A. $193.66

B. $387.33

C. $400.68 100%

D. $409.02

GeneralFeedback:

Par Amount X Coupon Rate X Time Period75000 X 6.5% X 30 divided by 365 = $400.68. Text reference: Chapter 7:

Fixed-Income Securities: Pricing and Trading.

Score: 1/1

85.

Identify the primary reason why Canadian provinces require listed companies to solicit proxies atshareholders’ meetings.

Student

Response

Value Correct

Answer

Feedback

A. To enable thefiling of votesand resultswith theSystem forElectronic

DocumentAnalysis andRetrieval(SEDAR).

B. To ensureshareholderapproval of decisionsmade at theannualgeneralmeeting.

C. To ensure anorderly votingprocess.

D. To preventmanagement’sabuse of shareholders’ rights.

100%

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GeneralFeedback:

Most provinces require the management of a reporting issuer to solicit proxies fromholders of its voting securities whenever it calls a shareholders’ meeting. Theseregulations were prompted by the realization that effective control of manycompanies is achieved through the use of proxies and that management could abuseits position in this area by soliciting proxies without proper disclosure. Text

reference: Chapter 3: The Canadian Regulatory Environment.

Score: 1/1

86.

What is the term for an investment order that is valid for a specified number of days and then isautomatically cancelled if it has not been filled?

Student

Response


A. Any partorder.

B. Good

throughorder.

100%

C. Limitorder.

D. N-C order.

GeneralFeedback:

Good Through Order: An order to buy or sell that is good for a specified number of days and then automatically cancelled if it has not been filled by the end of thetrading session on the date specified in the order. Text reference: Chapter 9:

Equity Securities: Equity Transactions.

Score: 1/1

87.

What term describes the process where a new issue of a stock has been given clearance by theregulators to be sold to the public?

Student

Response


A. Blueskyed.

100%

B. Override.

C. Primary.

D. Proxy.

GeneralFeedback:

The regulators review the documents carefully and may require changes before finalapproval. Once approval of the final prospectus is granted, the issue is then said tobe blue skyed and may be distributed to the investing public. Text reference:

Chapter 11: Financing and Listing Securities.

7/22/2019 CSC - Exam 1 - 2013




Score: 1/1

88.

CRC Inc. needs more capital to complete the building of their new factory. They hope that thisnew factory will make them very profitable and feel that they can repay the funds in about 5 or 6years. Their new venture is a bit risky so they don’t want to be saddled with an obligation to payinvestors if they hit a rough patch at the start. Their major shareholder has insisted that hisequity not be diluted. What is the ideal security CRC should issue?

Student

Response


A. Callablepreferredshares.

100%

B. Commonshares.

C. Convertiblepreferredshares.

D. Firstmortgagebonds.

GeneralFeedback:

Issuers of preferred shares frequently reserve the right to call or redeem preferredissues at a stated time and at a stated price. A call feature is a convenience to theissuer, rather than to the purchaser. Bonds would obligate the company to payinterest. Convertible preferred shares and common shares would dilute equity. Text

reference: Chapter 8: Equity Securities: Common and Preferred Shares.Score: 1/1

89.

When should the owner of retractable preferred shares exercise his retraction option?

Student

Response


A. Whenmarket

rates havedecreased.

B. Whenmarketrates haveincreased.

100%

C. When thecompany

7/22/2019 CSC - Exam 1 - 2013




hasincreasedthedividend.

D. When thecompany’scommonshares

haveincreasedin value.

GeneralFeedback:

Preferred shares trade on a yield basis. If interest rates are high, the price is falling.The client could retract the shares and use the money to invest in a security that ispaying the higher return. Text reference: Chapter 8: Equity Securities: Common

and Preferred Shares.

Score: 1/1

90.

What does it mean when a right trades on a ‘when issued’ basis?

Student

Response


A. Tradingstarts on theday thecompanyannouncesthe rights

issue.

100%

B. Tradingstarts on theday beforethe recorddate.

C. Tradingstarts on theday therights appearelectronically

in theshareholders’ accounts.

D. Trading of the rightscan only takeplace beforethe recorddate.

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GeneralFeedback:

Because of their short lifetime, rights are often bought and sold on a when-issued

basis between the date on which the rights are first announced by the company andthe date on which the actual rights are received by shareholders. When the rights areissued, all when-issued trades are settled. Text reference: Chapter 10:

Derivatives.

Score: 1/1

91.

Dale wants to place his funds in large U.S. industrial companies but doesn't want to buyindividual stocks. Recommend an index that best suits his investment objectives.

Student

Response


A. AmexMarketValueIndex.

B. S&P/TSXCompositeIndex.

C. Standardand Poor's500CompositeIndex.

100%

D. NASDAQComposite

Index.

GeneralFeedback:

The S&P is based on a large number of industrial stocks, some financial stocks, someutility stocks, and a smaller number of transportation stocks, which are weighted inthe index by their market capitalization. The index has become the main gauge formeasuring the investment performance of institutional investments in the UnitedStates because of its broad industry coverage and the method of weighting the index.Many institutional investors have created investment funds that track the S&P 500.Text reference: Chapter 8: Equity Securities: Common and Preferred Shares.

Score: 1/1

92.

If the originally borrowed stock in a short sale is called and no other stock can be borrowed toreplace it, what action can the broker take to cover the short sale?

Student

Response


A. Buy-in. 100%

7/22/2019 CSC - Exam 1 - 2013




B. Close-out.

C. Margincall.

D. Stop loss.

GeneralFeedback:

Buy-in requirements (the obligation to buy back the stock after selling it short)become effective if adequate margin cannot be maintained by the client and/or if theoriginally borrowed stock is called by its owner and no other stock can be borrowedto replace it. Text reference: Chapter 9: Equity Securities: Equity

Transactions.

Score: 1/1

93.

Sharif needs to invest $10,000. He says he’s interested in a company that will provide tax-advantaged returns. He doesn’t really need income although he says stock dividends would be

okay. But he is also indifferent about having a vote at the annual meeting. What type of securitywould you recommend to Sharif?

Student

Response


A. Commonshares.

100%

B. Debentures.

C. Deferred

preferreds.

D. Floatingratepreferredshares.

GeneralFeedback:

For many investors, the prospect of capital appreciation is the main attraction of common shares. Stocks have proven over time that such an attraction is justified,although not all common shares fulfil this expectation, and even those that do will notnecessarily increase in value every year. Sharif is interested in tax-advantaged

returns and is not focused on generating regular income. Debentures and floatingrate preferred shares mainly provide interest income and are not tax-advantagedinvestments. Deferred preferred shares pay a dividend premium upon maturity that isnot entitled to the dividend tax credit. Text reference: Chapter 8: Equity


Score: 1/1

94.

7/22/2019 CSC - Exam 1 - 2013




A transportation company would like to issue a new series of bonds by pledging its train cars andlocomotives as security instead of real property. What type of fixed-income security will it issue?

Student

Response


A. Collateraltrust

bond.

B. Equipmenttrustcertificate.

100%

C. Floating-ratedebenture.

D. Mortgagebond.

General

Feedback:

Equipment trust certificates pledge equipment as security instead of real property. CP

Locomotives, for example, issues these kinds of bonds, using its locomotives andtrain cars (i.e., rolling stock) as security. Text reference: Chapter 6: Fixed-

Income Securities: Features and Types.

Score: 1/1

95.

How does the subscription price of a right compare to the market price of the underlying share?

Student

Response


A. Thesubscriptionprice is setat adiscount tothe marketprice.

100%

B. Thesubscriptionprice is setat apremium tothe marketprice.

C. Thesubscriptionprice isbased onthe 3 day

7/22/2019 CSC - Exam 1 - 2013




average of the stockprice priorto issuedate.

D. They areequal at thetime of

issue.

GeneralFeedback:

The exercise price of a right, known as the subscription or offering price, is theprice shareholders pay to purchase additional shares of the company. The offeringprice is almost always lower than the market price of the shares at the time therights are issued. This makes the rights valuable and gives shareholders an incentiveto exercise them. Text reference: Chapter 10: Derivatives.

Score: 1/1

96.

ABC Ltd., an investment dealer, is the sole underwriter of a new $300 million share issue by MIRLtd. ABC has agreed to act as the principal on this issue. What is the implication of thearrangement between ABC and MIR?

Student

Response


A. ABC is MIR’sagent andwill hold andsafeguardthe acquired

securities.

B. ABC willpurchasethe entireissue fromMIR andresell it toinvestors.

100%

C. ABC’s profitswill consistsolely of the

commissionsthat itcharges onthe trades.

D. MIR takesall of therisk if thenew issuedoes not

7/22/2019 CSC - Exam 1 - 2013




sell.

GeneralFeedback:

In the securities business, underwriting or financing has come to mean the purchasefrom a government body or a company of a new issue of securities on a given date ata specified price. The dealers act as principals, using their own capital to buy theissue in anticipation of being able to make a profit when later selling it to others inthe primary or new issue market. The dealers also accept a risk since market pricesmay fall during the time the securities remain in their inventory. Text reference:

Chapter 2: The Canadian Securities Industry.

Score: 1/1

97.

Which statement best describes the Dow Jones Industrial Average (DJIA)?

Student

Response


A. A broad-based

averagedominated bysmallercapitalizationcompanies.

B. Acapitalization-weightedaverage of 30activelytraded blue-chip stocks.

C. A marketprice-weightedaverage of 30activelytraded blue-chip stocks.

100%

D. A marketprice-weighted

average of 30over-the-counterstocks.

GeneralFeedback:

Although normally around 2,300 issues trade daily on the New York Stock Exchange,the most publicity is given to the trading performance of the 30 issues that make upthe Dow Jones Industrial Average. Text reference: Chapter 8: Equity Securities:

Common and Preferred Shares.

7/22/2019 CSC - Exam 1 - 2013




Score: 1/1

98.

What type of financial intermediary owns securities as part of its inventory?

Student

Response


A. Agent.

B. Broker.

C. Principal. 100%

D. Underwriter.

GeneralFeedback:

When acting as a principal, the dealer owns securities as part of its inventory whenconducting transactions with clients and investors. Text reference: Chapter 2: The

Canadian Securities Industry.

Score: 1/1

99.

XYZ Diamond Corp. Series A preferred shares are entitled to cumulative preferential cashdividends. The annual dividend rate is 75% of the prime rate. The dividend rate is set on the lastbusiness day of the preceding month. What type of preferred share is this?

Student

Response


A. Auction.

B. Deferred.

C. Participating.

D. Variablerate.

100%

GeneralFeedback:

Variable-rate preferreds pay dividends in amounts that fluctuate to reflect changes ininterest rates. If interest rates rise, so will dividend payments, and vice versa. Whenthe issuer believes interest rates will not go much higher than they are at the date of issuance of the new issue. The company, in any event, is prepared to pay a higher

dividend if interest rates rise. Of course, if interest rates decline, the issuer will pay asmaller dividend (subject in most cases to a guaranteed minimum rate). Text

reference: Chapter 8: Equity Securities: Common and Preferred Shares.

Score: 1/1

100.

Which of the following statements about inflation is correct?

7/22/2019 CSC - Exam 1 - 2013



Student

Response


A. Higherinflationimprovesreal assetreturns.

B. Inflationenhancesthe valueof money.

C. M1 is theleadingindicatorfor therate of inflation.

D. Rising

inflationdecreasesthestandardof living.

100%

GeneralFeedback:

Inflation imposes many costs on the economy: it erodes the standard of living of those on a fixed income and those who lack wage bargaining power. Text

reference: Chapter 4: Economic Principles.

Score: 1/1

Done

csc - exam 1 - 2013

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