Question Results

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

Good choice! A. Principal.

B. Underwriter.
C. Agent.
D. Broker.

Feedback: When acting as a principal, the dealer owns securities as part of its inventory when conducting transactions with clients and
investors.

Reference | Chapter 1: The Canadian Securities Industry

Learning Domain | The Canadian Marketplace

2. What type of insurance generates the largest aggregate premiums for property and casualty insurance providers?

A. Marine insurance.
Good choice! B. Automobile insurance.
C. Liability insurance.
D. Property insurance.

Feedback: The largest aggregate premiums are generated by automobile insurance, followed by property insurance and liability insurance.

Reference | Chapter 1: The Canadian Securities Industry

Learning Domain | The Canadian Marketplace

3. What is the key difference between Schedule I and Schedule II banks?

Good choice! A. Foreign ownership.

B. Commercial loans.
C. Asset size.
D. Insurance services.

Feedback: Most Canadian-owned banks are designated as Schedule I banks and foreign-owned banks are either Schedule II or Schedule
III banks.

Reference | Chapter 1: The Canadian Securities Industry

Learning Domain | The Canadian Marketplace

4. Which type of Canadian bank tends to focus on providing corporate and investment banking?

A. Schedule II banks.
B. Schedule I banks that are independent from investment dealers.
Good choice! C. Schedule III banks.
D. Schedule I banks owned by investment dealers.

Feedback: A Schedule II bank may engage in all types of business permitted to a Schedule I bank. In practice, Schedule II banks derive
their greatest share of revenue from retail banking and electronic financial services. Schedule III banks tend to focus on corporate and
institutional finance, and investment banking.

Reference | Chapter 1: The Canadian Securities Industry

Learning Domain | The Canadian Marketplace
5. ABC Securities Inc. has both retail and institutional clients, and underwrites a wide range of federal, provincial, municipal and corporate
debt, as well as equity issues. Which type of investment dealer is ABC?

Good choice! A. Integrated firm.

B. Boutique firm.
C. Institutional firm.
D. Retail firm.

Feedback: Integrated firms offer products and services across the industry and participate fully in both the retail and institutional markets.
Most integrated firms underwrite all types of federal, provincial and municipal debt, as well as corporate debt and equity issues. They are
active in secondary markets, including the money market, as well as on all Canadian stock exchanges and some foreign exchanges.

Reference | Chapter 1: The Canadian Securities Industry

Learning Domain | The Canadian Marketplace

6. Brooklin’s bank has refused to loan her money for an upcoming vacation due to her poor credit history. Which financial intermediary should
she consider approaching to obtain funds?

A. Investment fund.
Good choice! B. Consumer finance company.
C. Savings bank.
D. Sales finance company.

Feedback: Consumer finance companies make direct cash loans to consumers who are usually unable to secure a loan from a bank.
Consumer finance companies typically charge higher interest rates than banks.

Reference | Chapter 1: The Canadian Securities Industry

Learning Domain | The Canadian Marketplace

7. In Canada, on which types of markets do most bonds and debentures trade?

1. Dealer markets.
2. Auction markets.
3. Over-the-counter (OTC) markets.
4. Primary markets.

A. 1 and 2.
B. 2 and 4.
Good choice! C. 1 and 3.
D. 3 and 4.

Feedback: Almost all bonds and debentures are sold through dealer markets, also known as over-the-counter (OTC) markets.

Reference | Chapter 2: The Capital Market

Learning Domain | The Canadian Marketplace
8. Who is responsible for providing liquidity on over-the-counter (OTC) markets by posting bid and ask quotations?

A. Transfer agents.
Good choice! B. Market makers.
C. Investment dealers.
D. Spread traders.

Feedback: In the OTC market, individual investors’ orders are not entered into the market or displayed on the computer system. Instead,
dealers, who are acting as market makers, enter their bid and ask quotations. These market makers hold an inventory of the securities in
which they have agreed to “make a market.” They sell from this inventory to buyers and add to it when they acquire securities from sellers.
The market makers post their individual bid (the highest price the maker will pay) and ask (the lowest price the maker will accept) quotations.
The willingness of market makers to quote bid and ask prices provides liquidity to the system.

Reference | Chapter 2: The Capital Market

Learning Domain | The Canadian Marketplace

9. How is liquidity ensured in over-the-counter (OTC) market trading?

Good choice! A. Market makers quote bid and ask prices.

B. Clearinghouse makes a guarantee based on the date specified in the original contract.
C. Different quotations from various market makers.
D. Availability of alternative markets for the security.

Feedback: The willingness of the market makers to quote bid and ask prices provides liquidity to the system; however, the market makers
do have the right to refuse to trade at the quoted price.

Reference | Chapter 2: The Capital Market

Learning Domain | The Canadian Marketplace

10.An individual has two personal accounts and one account in trust at an investment dealer for a minor child. How would her coverage be
evaluated by the Canadian Investor Protection Fund (CIPF)?

A. Each account is evaluated separately.

B. Two personal accounts are evaluated for coverage, while the trust is subject to separate legislation.
Good choice! C. Two personal accounts are combined, while the trust account is evaluated separately.
D. All three accounts are combined.

Feedback: A customer’s accounts, such as cash, margin, short sale, options, futures and foreign currency, are combined and treated as one
general account entitled to the maximum coverage. Separate accounts are accounts disclosed in the records that are treated as if they
belonged to a separate customer, and they are each entitled to the maximum coverage. A trust account held for the benefit of a minor would
be considered separate from an investor’s general account.

Reference | Chapter 3: The Canadian Regulatory Environment

Learning Domain | The Canadian Marketplace

11. What function is an investment advisor performing by detecting a suspicious transaction in a client account and reporting it?

A. Advisory role.
B. Know Your Client (KYC) role.
Good choice! C. Gatekeeper role.
D. Client relationship manager role.

Feedback: Protecting the markets from potential illegal activities is an important responsibility for registered representatives. The gatekeeper
role includes reporting any transactions or proposed transactions in client accounts that are suspicious.

Reference | Chapter 3: The Canadian Regulatory Environment

Learning Domain | The Canadian Marketplace
12.Samji feels he has been treated unfairly by his investment firm. He believes he lost over $85,000 due to inappropriate advice from his
advisor. He tried to resolve it with the firm but was unsuccessful. What other option does he have?

1. File a complaint with the Ombudsman for Banking Services and Investments (OBSI).
2. Request arbitration from the Investment Industry Regulatory Organization of Canada (IIROC).
3. Appeal to the Ontario Securities Commission (OSC).
4. Appeal to the Canadian Investor Protection Fund (CIPF).

A. 3 and 4.
Good choice! B. 1 and 2.
C. 1 and 3.
D. 2 and 4.

Feedback: One avenue for investors who feel they have been treated unfairly is the Ombudsman for Banking Services and Investments
(OBSI). OBSI is an independent organization that investigates customer complaints against financial services providers, including banks and
other deposit-taking organizations, investment dealers, mutual fund dealers and mutual fund companies. Another avenue is arbitration. If a
client requests arbitration from a self-regulatory organization (SRO), the dealer member must accept both the process and the arbitrator’s
decision. To be eligible for arbitration, the dispute must meet the following criteria: attempts must have been made to resolve the dispute with
the investment dealer; the claim cannot exceed $500,000.

Reference | Chapter 3: The Canadian Regulatory Environment

Learning Domain | The Canadian Marketplace

13.Nam’s client has $2,500 in chequing accounts, $50,000 in seven-year term deposits and $5,000 in savings accounts at one bank branch,
and $75,000 in an RRSP at another branch of the same bank. How much would the Canada Deposit Insurance Corporation (CDIC) cover
for Nam’s client if the bank failed?

You chose: A. $82,500.00.

The correct answer is: B. $132,500.00.
C. $7,500.00.
D. $100,000.00.

Feedback: The CDIC insures eligible deposits up to $100,000 per depositor in each member institution. The $100,000 maximum includes all
of the client’s insurable types of deposits with the same CDIC member. Deposits at different branches of the same member institution are not
insured separately.

Reference | Chapter 3: The Canadian Regulatory Environment

Learning Domain | The Canadian Marketplace

14.Which group or organization oversees all investment dealers and trading activity on debt and equity marketplaces in Canada?

A. Canada Deposit Insurance Corporation (CDIC)

B. Office of the Superintendent of Financial Institutions (OSFI).
C. Securities and Exchange Commission (SEC).
Good choice! D. Investment Industry Regulatory Organization of Canada (IIROC).

Feedback: IIROC oversees all investment dealers and trading activity on debt and equity marketplaces in Canada. Its mandate is “to set
high-quality regulatory and investment industry standards, protect investors and strengthen market integrity while maintaining efficient and
competitive capital markets”.

Reference | Chapter 3: The Canadian Regulatory Environment

Learning Domain | The Canadian Marketplace
15.Hari is employed by a large self-directed brokerage firm and has completed her 30-day training period. She takes orders from clients and
enters them in the trading system, but is not allowed to offer any advice. What is Hari’s category of registration?

A. Administrator.
B. Investment advisor.
C. Securities dealer.
Good choice! D. Investment representative.

Feedback: Investment representatives (IRs) are largely employed by self-directed brokerage firms, where clients make their own investment
decisions. Advisors in this category can trade in securities, but they do not provide advice to clients. The proficiency requirements for IRs
require a training period of 30 days.

Reference | Chapter 3: The Canadian Regulatory Environment

Learning Domain | The Canadian Marketplace

16.What is the effect on the balance of payments if Canada exports $80 billion in goods and imports $150 billion in goods over the same
period, holding all other factors constant?

A. Capital account surplus.

Good choice! B. Current account deficit.
C. Balance of trade surplus.
D. Transfer payments deficit.

Feedback: Exports represent the sale of goods and services to consumers outside of Canada, while imports are the purchases of goods
and services Canadians make. During a given year, if Canada buys more goods and services from abroad than it sells, it will run a current
account deficit for the year. The opposite is true – if Canada sells more goods and services from abroad than it buys, it will run a current
account surplus for the year.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy

17.What is an example of a business cycle leading indicator?

A. Unemployment rate.
B. Gross domestic product (GDP).
Good choice! C. Housing starts.
D. Private sector plant and equipment spending.

Feedback: 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. These purchases have a broader positive impact over
the entire economy. The unemployment rate is a lagging indicator, GDP is a coincident indicator and private sector spending is a lagging
indicator.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy

18.What is the cause of structural unemployment?

A. Increases in productivity.
Good choice! B. Workers lacking necessary skills.
C. Workers entering and exiting the marketplace.
D. Fluctuations in the business cycle.

Feedback: Structural unemployment occurs when workers are unable to find work or fill available jobs because they lack the necessary
skills, do not live where jobs are available 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 and government policy.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy
19.What is the relationship with inflation that the Phillips curve represents?

A. Inflation and unemployment levels move in the same direction.

B. Inflation and interest rates move in the same direction.
C. Inflation and interest rates move in the opposite direction.
Good choice! D. Inflation and unemployment levels move in the opposite direction.

Feedback: The potential cost of disinflation is captured by the Phillips curve, which indicates when unemployment is low, that inflation tends
to be high, and when unemployment is high, that inflation tends to be low.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy

20.The table below provides the demand and supply in the market for vacuum cleaners. What is the effect on the equilibrium price if new
technology results in increased production at all levels of 1,500 units?
Market for Vacuum Cleaners
Price Quantity Demanded Quantity Supplied
(units) (units)

$300 10,500 1,000

$350 10,000 2,500

$400 9,000 4,000

$450 7,000 5,500

$500 6,000 6,000

$550 2,000 8,000

$600 1,000 9,500

A. Increase in quantity demanded.

Good choice! B. Lower equilibrium price.
C. Decrease in quantity supplied.
D. Higher equilibrium price.

Feedback: An increase in the quantity supplied by 1,500 units leads to a new lower equilibrium price of $450 – quantity supplied at that level
rises from 5,500 to 7,000 units. Since 7,000 units are demanded at a price level of $450, and 7,000 units are supplied at a price level of
$450, the new equilibrium price must now be $450. Thus, the equilibrium price will be lower.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy

21.Daria just completed her university degree and is now unemployed but actively looking for a job. Which type of unemployment does Daria
represent?

A. Structural.
B. Discouraged.
Good choice! C. Frictional.
D. Cyclical.

Feedback: Frictional unemployment is the result of normal labour turnover, from people entering and leaving the workforce and from the
ongoing creation and destruction of jobs. Even in the best of economic times, people are looking for work because they have finished school,
quit, been laid off or been fired from their most recent job.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy
22.The Consumer Price Index (CPI) was 123.5 in the previous period and 128.6 in the current period. What is the approximate inflation rate
during this period?

A. 3.97%.
B. 5.10%.
C. 6.05%.
Good choice! D. 4.13%.

Feedback: The inflation rate is determined by the following calculation: (CPI current minus CPI previous) / CPI previous × 100. For this
question, the calculation is as follows: (128.6 – 123.5) / 123.5 x 100 = 4.13.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy

23.Assuming there are no other changes to the economy, which events will increase the value of the Canadian dollar?

1. Increase in imports.
2. Increase in commodity prices.
3. Unexpected increase in the inflation rate in Canada.
4. Increase in Canadian interest rates.

A. 3 and 4.
B. 1 and 3.
C. 1 and 2.
Good choice! D. 2 and 4.

Feedback: Commodity prices: One of the strongest influences on the Canadian exchange rate is the price level of commodities. Canada is
heavily dependent on trade, particularly the export of natural resources to other countries, including commodities such as forestry products,
base metals, crude oil and wheat. Countries around the world that buy Canadian products need Canadian dollars to finance their purchases.
As the demand for commodities increases and as commodity prices rise, the demand for Canadian dollars also rises. Interest rate
differentials: Central banks can influence the value of their exchange rate by raising and lowering short-term nominal interest rates. Higher
domestic interest rates increase the return to lenders relative to other countries. This attracts capital and lifts the exchange rate. Lower
interest rates have the opposite effect. However, the impact of higher interest rates is reduced if domestic inflation is also much higher or if
other factors are driving the currency down.

Reference | Chapter 4: Economic Principles

Learning Domain | The Economy

24.The Bank of Canada's targeted operating band is 2.5% to 3.0%, and the overnight rate is 3.2%. What is the best course of action for the
Bank of Canada to take?

Good choice! A. Offer to lend money to financial institutions at 3.0% overnight.

B. Raise the bank rate to 3.3%.
C. Change the target range to 2.8% to 3.3%.
D. Offer to borrow money from financial institutions at 2.5% overnight.

Feedback: The target for the overnight rate is the upper limit of the operating band – 3% in this example. Special Purchase and Resale
Agreements (commonly referred to as SPRAs or “Specials”) are used by the Bank of Canada (BoC) to relieve undesired upward pressure on
overnight financing rates. If overnight money is trading above the target of the operating band, the BoC may believe that the higher rate will
dampen economic activity. To combat this, the BoC intervenes and offers to lend at the upper limit of the operating band.

Reference | Chapter 5: Economic Policy

Learning Domain | The Economy
25.Due to a recent recession, a government is experiencing a deficit for the first time in over a decade. It had previously predicted a surplus for
the year. What impact will this have on the government’s national debt?

A. Decrease by the amount of the deficit.

B. Decrease by the amount of the surplus originally expected.
C. Increase by the amount of the surplus originally expected.
Good choice! D. Increase by the amount of the deficit.

Feedback: If total spending for the year is higher than the revenue collected, the government has a budget deficit for the year. Accordingly, if
the revenue collected for the year equals total spending, the government has a balanced budget. When the government runs a budget
deficit, it must borrow to make up the difference by selling government bonds and Treasury bills into the market. The accumulation of total
government borrowing over time is referred to as government debt or national debt, which is the sum of past deficits minus the sum of past
surpluses.

Reference | Chapter 5: Economic Policy

Learning Domain | The Economy

26.What action will the Bank of Canada take if it is concerned that short-term interest rates are too low?

A. Redeposit to decrease the money supply.

Good choice! B. Drawdown to decrease the money supply.
C. Drawdown to increase the money supply.
D. Redeposit to increase the money supply.

Feedback: A drawdown refers to the transfer of deposits to the Bank of Canada from chartered banks, effectively draining the supply of
available cash balances from the banking system. This decreases deposits and reserves available to the banks to use in their business.
Removing money from the system causes a contraction in the availability of loans to consumers and businesses, which places upward
pressure on interest rates.

Reference | Chapter 5: Economic Policy

Learning Domain | The Economy

27.Which activity is part of the Bank of Canada’s role as a fiscal agent?

A. Distributing bank notes.

Good choice! B. Managing gold reserves.
C. Setting the bank rate.
D. Acting as a lender of last resort.

Feedback: The Bank of Canada is the fiscal agent for the Government of Canada. As part of that role, it manages the government’s foreign
currency reserves, such as U.S. dollars, euros, gold and silver.

Reference | Chapter 5: Economic Policy

Learning Domain | The Economy

28.A government, which is preparing for an upcoming election, cuts personal income taxes. Consumers save the additional funds. Which fiscal
challenge has the government encountered?

A. Coordination of municipal policies.

Good choice! B. Future expectations.
C. High federal debt.
D. Timing lag.

Feedback: Future expectations can cause a policy initiative to fail if consumers see it as a short-term initiative that may be reversed, such as
a tax cut that is implemented shortly before an election. Consumers may choose to save the tax cut, instead of increasing their spending.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities
29.ABC Ltd. 10-year bonds, due April 15, 20XX, include the following provision: "ABC must redeem a minimum of 5% of the issue on April 15
each year." Which feature has ABC included with this bond?

Good choice! A. Sinking fund.

B. Retractable.
C. Callable.
D. Purchase fund.

Feedback: 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) or by buying them in the secondary market when the trading price is at or below a specified price
(through a purchase fund). Some corporate bonds have a mandatory call feature for sinking fund purposes. Sinking funds are sums of
money that are set aside out of earnings each year to provide for the repayment of all or part of a debt issue by maturity.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

30.What are the characteristics of a Government of Canada marketable bond?

1. Non-transferable.
2. Non-callable.
3. Tradable in the secondary market.
4. Maximum purchase amount per individual.

Good choice! A. 2 and 3.

B. 1 and 2.
C. 1 and 4.
D. 3 and 4.

Feedback: The Government of Canada issues marketable bonds in its own name. These issues are known as marketable bonds because,
as well as having a specific maturity date and a specified interest rate, they are transferable, which means they may be traded in the market.
In Canada, most corporate and provincial bond issues are callable. However, Government of Canada bonds and municipal debentures are
usually non-callable.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

31.A bond with a $10,000 face value is purchased at a price of 97. What does this mean for an investor who is buying the bond?

1. The bond will mature for less than its face value.
2. The bond will produce lower coupon income over its term.
3. The bond will generate a capital gain if held to maturity.
4. The bond is priced at a discount to its par value.

A. 1 and 3.
B. 2 and 4.
C. 1 and 2.
Good choice! D. 3 and 4.

Feedback: The bond is currently being offered at a discount to par value. If the bond is purchased at a discount and held to maturity the
investment generates a capital gain for the holder.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities
32.Which type of bond is secured by real property, such as office buildings?

A. Purchase fund bond.

B. Collateral trust bond.
C. Equipment trust certificate.
Good choice! D. Mortgage bond.

Feedback: A mortgage is a legal document containing an agreement to pledge land, buildings or equipment 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.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

33.A transportation company would like to issue a new series of bonds by pledging its train cars and locomotives as security. Which type of
fixed income security will it issue?

A. Mortgage bond.
Good choice! B. Equipment trust certificate.
C. Collateral trust bond.
D. Floating rate debenture.

Feedback: Equipment trust certificates pledge equipment as security instead of real property. CP Locomotives, for example, issues these
kinds of bonds, using its locomotives and train cars (i.e., rolling stock) as security.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

34.A bond is trading at 96.77. The bond’s yield decreases by 0.75%. Ignoring any other considerations, what impact will this have on the
bond's price?

A. Bond yield changes are unrelated to current bond prices.

Good choice! B. The bond’s price will increase.
C. The bond’s price will decrease.
D. Slight price movement, either up or down, depending on market conditions.

Feedback: When the yield and coupon rate are the same, the bond’s price is at par or 100. When the yield falls below the coupon rate, the
bond’s price rises higher than par. Alternatively, when the yield rises above the coupon rate, the bond’s price falls lower than par.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

35.What is the difference between a sinking fund and a purchase fund?

A. Sinking fund permits additional issues of bonds, while a purchase fund is for bond retirements.
Good choice! B. Sinking fund is binding while a purchase fund is not.
C. Sinking fund retires 40% to 60% of outstanding bonds issue, while a purchase fund retires 100%.
D. Sinking fund buys bonds at a discount, while a purchase fund redeems them at a premium.

Feedback: Some corporate bonds have a mandatory call feature for sinking fund purposes. Sinking funds are sums of money that are set
aside out of earnings each year to provide for the repayment of all or part of a debt issue by maturity. Sinking fund provisions are as binding
on the issuer as any mortgage provision. Some companies have a purchase fund instead of a sinking fund. Under such an arrangement, a
fund is set up to retire a specified amount of the outstanding bonds or debentures through purchases in the market – if these purchases can
be made at or below a stipulated price.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities
36.Sachi has just purchased a 6% 10-year bond trading at 97. What does the bond price indicate about current interest rates?

A. Bond is trading at a premium as current market rates have fallen below the coupon rate.
B. Bond is trading at a discount as current market rates are lower than the coupon rate.
C. Bond is trading at par as current market rates are around 6%.
Good choice! D. Bond is trading at a discount as current market rates are higher than the coupon rate.

Feedback: A bond’s yield should not be confused with the coupon rate; they are two different things. Given the yield and the coupon rate,
the following relationships hold: if the yield is greater than the coupon rate, the bond is trading at a discount; if the yield is equal to the
coupon rate, the bond is trading at par; and if the yield is less than the coupon rate, the bond is trading at a premium.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

37.Which bond should a risk-averse investor purchase if he is concerned the economy is falling deeply into a recession?

A. ABC bond with a C credit rating.

B. GHI bond with an A credit rating.
Good choice! C. JKL bond with an Aa credit rating.
D. DEF bond with a Baa credit rating.

Feedback: JKL bond has the highest rating, so it would be the safest bond.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

38.What measure is used to determine if a bond is marketable?

A. Ease of transferability.
Good choice! B. A ready market.
C. Issuer’s credit quality.
D. Effect on price of large volume trades.

Feedback: For a bond to be marketable, it must have a ready market.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

39.Devika owns a 6% $10,000 callable corporate bond due on June 30, 2030. This bond is not redeemable until after June 30, 2025. Starting
July 1, 2025, it is redeemable according to the following payment schedule on 30 days’ notice, up to the 12 months ending June 30 of each
year:

1. From July 1, 2025 to June 30, 2026 at 105.21.

2. From July 1, 2026 to June 30, 2027 at 103.85.
3. From July 1, 2027 to June 30, 2028 at 100.85.
4. From July 1, 2028 and thereafter at 100.00 (at par to maturity).

Devika’s bond is called on August 30, 2026. Excluding accrued interest, how much will Devika be paid?

Good choice! A. $10,385.00.

B. $13,850.00.
C. $10,000.00.
D. $10,485.00.

Feedback: Devika’s bond was called on August 30, 2026, and bonds redeemed between July 1, 2026 and June 30, 2027 are entitled to a
price of 103.85. Therefore, she will be paid $10,385.00 ($10,000 x 1.0385).

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities
40.Shamila, a risk-averse investor, wishes to invest $10,000 in a Guaranteed Investment Certificate (GIC) through a $300 monthly purchase.
What type of GIC should Shamila buy?

A. Laddered GIC.
B. Escalating GIC.
Good choice! C. Instalment GIC.
D. Interest rate-linked GIC.

Feedback: Instalment GICs allow the investor to make an initial deposit and continue to invest additional money each month.

Reference | Chapter 6: Fixed-Income Securities: Features and Types

Learning Domain | Features and Types of Fixed-Income Securities

41.A bond is purchased at 96.77 with a yield of 4.65%. Similar bonds increase in yield to 4.95%. Ignoring any other considerations, what
impact will this have on the bond's price and yield?

A. Increase in price, increase in yield.

B. Decrease in price, decrease in yield.
C. Increase in price, decrease in yield.
Good choice! D. Decrease in price, increase in yield.

Feedback: The most important bond pricing relationship to understand is the inverse relationship between bond prices and interest rates (or
bond yields) – as interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. It is also important to recognize that interest
rates and bond yields are often used interchangeably. Each represents a rate of return on an investment. Therefore, as interest rates rise,
the yields on competing investments must also rise, and vice versa. As we saw in the section on yield calculations, bond prices fall when
bond yields rise.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

42.The present value of a bond's income stream is $28.50. The present value of its principal is $95. How much would an investor pay for this
bond?

A. $28.50.
B. $100.00.
C. $95.00.
Good choice! D. $123.50.

Feedback: $95.00 + $28.50 = $123.50.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

43.When will a purchase today of a three-month Government of Canada Treasury bill settle?

Good choice! A. Today.

B. First clearing day after today.
C. Second clearing day after today.
D. Third clearing day after today.

Feedback: Trading in Government of Canada Treasury bills is settled on the same day as the transaction.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities
44.Maurice is considering the purchase of a Nova Scotia Power Inc. 5.75% bond due March 15, 20XX. If Maurice purchases this bond, what
three variables should he use to calculate how much accrued interest is payable?

A. Principal amount, yield to call and term to maturity.

Good choice! B. Principal amount, coupon rate and time period between coupon payment and settlement.
C. Purchase price, yield to maturity and time period between coupon payment and settlement.
D. Purchase price, current yield and term to maturity.

Feedback: The amount of accrued interest is found by using three variables:

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.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

45.At a price of $105.60, an investor purchased $75,000 face value worth of an annual pay 6.50% bond due June 1, 20XX. The purchase
settled 30 days after the last coupon payment. How much accrued interest will the investor pay?

Good choice! A. $400.68.

B. $193.66.
C. $409.02.
D. $387.33.

Feedback: Par Amount x Coupon Rate x Time Period [($75,000 x 6.5% x 30) / 365] = $400.68.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

46.Which yield calculation is based only on current market price and cash flows?

A. Yield to maturity.
B. Approximate yield to maturity.
Good choice! C. Current yield.
D. Portfolio yield.

Feedback: Current yield looks only at cash flows and the current market price of the investment, not at the amount that was originally
invested.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

47.What is a basic assumption of the market segmentation theory?

A. Investors prefer short-term bonds because they are more liquid and less volatile in price.
Good choice! B. Supply and demand of bonds are primarily influenced by larger market participants.
C. Longer-term bonds have higher yields because they assume additional risk.
D. An upward sloping yield curve indicates higher rates in the future.

Feedback: The various institutions that are major players in the fixed income arena each concentrate their efforts in a specific term sector.
For example, the major chartered banks tend to invest in the short-term market, while life insurance companies, because of their long
investment horizon, mainly operate in the long-term bond sector. This theory postulates that the yield curve represents the supply of and
demand for bonds of various terms, primarily influenced by the bigger players in each sector.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities
48.Alisa is deciding between four different five-year bonds with different annual coupons: a 3.75% bond, a 3.85% bond, a 3.95% bond and a
4% bond. She anticipates that interest rates will drop sharply in the next six months. At the end of six months, she intends to sell the bond.
Assuming the bonds are similar other than their coupons, which bond should she buy?

A. 3.85%.
B. 4%.
Good choice! C. 3.75%.
D. 3.95%.

Feedback: An investor wants the bond that is the most volatile. When interest rates go down, bond prices go up, which will result in a profit
for Alisa. Lower coupon bonds are more volatile than higher coupon bonds. Therefore, she should choose the 3.75% bond, as it will increase
in price more than the lower coupon bonds.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

49.Marco owns a 6% bond maturing in seven years and a 7% bond maturing in eight years. The duration on the 6% bond is 6.5, while the
duration on the 7% bond is 6.0. Which bond will react more to a change in interest rates?

A. 7% bond, as it has a longer maturity.

B. 7% bond, as it has a lower duration.
Good choice! C. 6% bond, as it has a higher duration.
D. 6% bond, as it has a lower coupon rate.

Feedback: The 6% bond with the higher duration of 6.5 will react more to a change in interest rates than the 7% bond with the duration of
6.0.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

50.Johan purchased a five-year 5.25% annual Province of Quebec bond that pays interest annually. Current market rates are 6%. What is the
price Johan should pay for the bond?

Good choice! A. $96.84.

B. $100.00.
C. $103.26.
D. $99.27.

Feedback: The calculation is as follows: FV = 100, PMT = 5.25, I = 6, N = 5, PV = $96.84.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities

51.When would an investor buying Government of Canada Treasury bills need to have funds in their account for settlement?

A. First clearing day after the transaction takes place.

B. Third clearing day after the transaction takes place.
Good choice! C. Same day the transaction takes place.
D. Second clearing day after the transaction takes place.

Feedback: The settlement for Government of Canada treasury bills is on the same day the transaction takes place.

Reference | Chapter 7: Fixed-Income Securities: Pricing and Trading

Learning Domain | Pricing and Trading of Fixed-Income Securities
52.How are reinvested dividends treated for income tax purposes?

A. As a regular cash dividend when the shares are sold.

B. As a capital gain when the shares are sold.
Good choice! C. As an ordinary cash dividend.
D. As a capital gain when the shares are received.

Feedback: Even though the investor does not receive the dividend, and instead the dividend is reinvested in additional shares, the investor
is taxed as though they received the dividend as cash from the issuer.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

53.Marjorie wants to purchase preferred shares in a non-registered account and is seeking an investment that has the potential to defer taxes.
She does not need a regular income stream. What is the best investment option for Marjorie?

Good choice! A. Deferred preferred shares.

B. Participating preferred shares.
C. Voting preferred shares.
D. Cumulative preferred shares.

Feedback: Deferred preferred shares allow investors to defer taxes paid on income earned until a later date and are attractive to investors
who do not have an immediate need for regular income. The shares are also attractive for investors who want to receive compounded
growth in a registered account, such as an RRSP, as taxes are deferred to a later period.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

54.How would an investment finance publication describe the Standard and Poor's (S&P) 500 Composite Index?

A. Broad-based index of U.S. companies adjusted by a divisor reflecting the effect of stock splits.
Good choice! B. Capitalization-weighted index with larger capitalization stocks having more effect on the index value.
C. Index of 500 stocks focused on the financial services industry.
D. A market-weighted index of stocks that trade mostly over the counter.

Feedback: Since the S&P 500 Index is weighted by market capitalization, more heavily weighted stocks have a greater effect on the Index’s
value.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

55.What is a benefit of owning preferred shares instead of common shares?

A. Greater potential for capital appreciation.

Good choice! B. Preference for dividend payments.
C. Prior claim on company assets before bondholders.
D. Exclusive voting rights.

Feedback: Preferred shareholders are usually entitled to a fixed dividend payment, subject to the discretion of the Board of Directors. Since
most preferred shares can be considered fixed income securities, they do not offer from an investment standpoint the same potential for
capital appreciation that common shares provide. Should interest rates decline, the preferred shares will increase in price, much like a bond.
However, good corporate earnings will have no effect on the dividend rate or equity allocation. Thus, the dividend rate is of prime importance
to the preferred shareholder.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares
56.How are stock dividends paid to Canadian resident taxpayers treated for tax purposes?

A. As capital gains when shares are received.

Good choice! B. As cash dividends.
C. As capital gains when shares are sold.
D. Ordinary income.

Feedback: Since stock dividends are treated as regular cash dividends for tax purposes, given the option many investors elect to receive
dividends in cash.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

57.When does the variable rate option for a preferred share most benefit an investor?

A. Rapidly increasing stock prices.

B. Falling interest rates.
C. Volatile stock markets.
Good choice! D. Rising interest rates.

Feedback: From the purchaser’s standpoint, variable rate preferred shares provide higher income if interest rates rise, but lower income if
interest rates fall.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

58.Ruth, who is retired, is thinking of investing in a company she believes will have lots of financial upside over the long term. She only needs a
small amount of steady income to maintain her current lifestyle. Which type of equity security would be suitable for Ruth?

Good choice! A. Participating preferred shares.

B. Restricted common shares.
C. Common shares with a dividend reinvestment plan (DRIP).
D. Floating rate preferred shares.

Feedback: Participating preferred shares have certain rights to a share in a company’s earnings over and above their specified dividend
rate.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

59.ABC Inc. needs to raise capital to finish building their new factory without diluting current ownership. The company expects to be profitable
and generate enough income to repay capital in five to six years. Due to the nature of the project, the company anticipates possibly needing
to defer income payments in the second year. Which security should ABC issue?

The correct answer is: A. Callable preferred shares.

B. Common shares.
C. First mortgage bonds.
You chose: D. Convertible preferred shares.

Feedback: Issuers of preferred shares frequently reserve the right to call or redeem preferred issues at a stated time and at a stated price. A
call feature is a convenience to the issuer, rather than to the purchaser. Bonds would obligate the company to pay interest. Convertible
preferred shares and common shares would dilute equity.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares
60.Who typically buys preferred shares?

A. Conservative investors seeking fixed income interest.

B. Growth-oriented investors seeking capital gains.
C. Speculative investors seeking an arbitrage situation with common shares.
Good choice! D. Income-oriented investors seeking the dividend tax credit.

Feedback: Preferred shares are bought largely by income-oriented investors seeking income and access to the dividend tax credit.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

61.QWE Inc.’s share price has increased from $35 per share to $175 per share, and has experienced a significant drop in trading volume.
Management is concerned the low liquidity may reflect badly on the company. Which option should management undertake to increase daily
trading activity?

A. Share consolidation.
B. Reverse split.
C. Stock dividend.
Good choice! D. Stock split.

Feedback: When a split becomes effective, the market price of the new shares reflects the basis of the split. For example, in a 4-for-1 split,
the market price of shares selling at $100 (pre-split basis) will sell somewhere in the $25 range after the split. An investor who owned 1,000
shares of the company would now own 4,000 shares.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

62.XYZ Inc. declared dividends payable on July 8 to shareholders of record on June 17. Anita purchased 200 XYZ shares on June 16. What is
Anita’s entitlement to the dividends, assuming all days are business days?

A. Must pay dividends to original share owner.

Good choice! B. Not entitled to the dividends.
C. Owes dividend amount to clearing broker.
D. Entitled to the dividends.

Feedback: Since trades settle on the second business day after a trade, Anita’s purchase of shares one business day before the record
date on June 16 would not settle until the day after the record date. Therefore, Anita would not be a shareholder of record for purposes of
receiving the dividends.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

63.An investor owns shares purchased at $10 per share that undergo a 1-for-5 share reverse split and pay a $1 annual dividend. Which
investment consideration remains unchanged?

A. Dividend per share.

B. Number of shares.
Good choice! C. Adjusted cost base.
D. Price of the shares.

Feedback: A 1-for-5 share reverse split means that an investor receives one share for every five shares they held before the split: 1,000 / 5
= 200 shares. The book (cost) value represents all of the costs an investor incurred in purchasing their current share holdings. The reverse
split does not affect this, as no new costs are incurred. Therefore, the investor’s book value stays the same.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares
64.A Canadian stock exchange publishes the following dividend announcement:
Payment ($) When Payable Shareholders of Record Ex Dividend Date
Y Inc. 0.27 June 5 May 22 May 21
What is the last date that an investor can purchase shares of Y Inc. and still receive the dividend, assuming that all days are business days?

Good choice! A. May 20.

B. May 23.
C. May 21.
D. May 22.

Feedback: Shares begin to trade ex-dividend one business day prior to the record date. However, a trade takes two business days to settle.
Purchasing shares by May 20 at the latest (settlement on May 22) will ensure access to the dividend.

Reference | Chapter 8: Equity Securities: Common and Preferred Shares

Learning Domain | Common and Preferred Shares

65.Shabnam placed a buy order for 10,000 shares of ABC Inc. with instructions to automatically cancel the order if it is not filled by the end of
the third trading day. What kind of order did she place?

Good choice! A. Good through order.

B. Day order.
C. Market order.
D. Limit order.

Feedback: 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 the trading session on the date specified in the order.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions

66.What action can a broker take to cover a short sale if the originally borrowed stock is called and no other stock can be borrowed to replace
it?

A. Margin call.
Good choice! B. Buy-in.
C. On-stop sell.
D. Close-out.

Feedback: 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 the originally borrowed stock is called by its owner and no other stock can be borrowed to replace it.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions

67.Which type of investment order is placed on behalf of the account of a dealer member’s partner or director?

Good choice! A. Pro order.

B. Preferential order.
C. Non-Emp order.
D. Exempt order.

Feedback: Pro orders are orders for the accounts of partners, directors, officers, shareholders, investment advisors and, in some cases,
specified employees. Tickets for such orders must be clearly labelled “pro” or “N-C” (non-client) or “emp” (employee) orders. Under the
preferential trading rule, this type of order is executed after a client’s order if both orders compete at the same price for the same security.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions
68.What are the characteristics of short selling?

1. Short seller believes shares will decrease in price.

2. Short seller cannot be forced to close out position.
3. Short seller may have difficulty borrowing shares.
4. Short seller must close out position before end of the month.

A. 3 and 4.
B. 1 and 2.
C. 2 and 4.
Good choice! D. 1 and 3.

Feedback: There can be difficulties in borrowing a sufficient quantity of the security sold short to cover the short sale. If the short seller’s
dealer finds at some point that there is no replacement stock it can borrow to maintain or carry a client’s short position, then the client must
buy the necessary shares and cover the short sale. This has to be done whether the short seller wants to buy back the shorted security or
not, and regardless of the shorted security’s prevailing market price. The short seller believes the price of the shares will decline.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions

69.Stephan has bought 100 shares of DEF Inc. at $25 per share on margin. The shares increase in price to $30 a share. What is the impact on
Stephan’s margin account?

Good choice! A. Can withdraw funds from the account.

B. No impact on the account.
C. Margin deposit is required.
D. Must close out position.

Feedback: Margin requirements will decline, as the dealer will be willing to provide a larger loan since the shares have increased in value.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions

70.Nikolai wants to borrow money to buy stocks. Which type of account must he open?

A. American-style account.
Good choice! B. Margin account.
C. Cash account.
D. Agent account.

Feedback: Margin accounts are for clients who wish to buy and/or sell securities on credit and initially pay only part of the transaction’s full
price. In such cases, the dealer member lends the remainder of the transaction price to the client, charging interest on the loan.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions

71.Shania has $10,000 to invest and wants to buy 1,000 POI Inc., which is currently trading at $9.00. She is concerned that a sudden price
increase during the trading day could make the trade too expensive. Which type of order should Shania place?

A. An on-stop sell order.

B. A market order.
Good choice! C. A limit order.
D. An on-stop buy order.

Feedback: A limit order is an order to buy or sell securities at a specific price or better. The order will only be executed if the market reaches
or betters that price.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions
72.An investor purchases 300 shares of ABC at $11 per share on margin, making the minimum margin deposit. Two weeks later, the price of
ABC shares rises to $15.00 per share. Ignoring any other costs and considerations, how will this price increase affect the margin deposit
required from the investor?

1. Margin call will be issued.

2. Investor will be required to close his/her position.
3. Investor may use excess funds to purchase additional stocks.
4. Investor may withdraw excess funds from the account.

Good choice! A. 3 and 4.

B. 1 and 2.
C. 2 and 4.
D. 1 and 3.

Feedback: When a long position is established on margin, sufficient funds (or securities with excess loan value) must be in the account to
cover the purchase. The dealer lends some of these funds to the client, who is responsible for the balance. As the shares have risen in
value, the maximum loan value a broker will give for the shares increases. This means the client's required margin deposit will decrease. The
client may withdraw the difference between the original deposit and the new requirement, or use it toward the purchase of another security.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions

73.Ethan places an order to buy 1,000 shares of ABC at $4.85 per share or less. Which type of order did Ethan place with his broker?

A. On-stop sell order.

B. On-stop buy order.
Good choice! C. Day order.
D. Good through order.

Feedback: Day order: An order to buy or sell that expires if it is not executed on the day it is entered. All orders are considered to be day
orders unless otherwise specified.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions

74.Erik just purchased 1,000 shares of DEF Inc. Which document will his dealer provide to him with the transaction details?

A. Transmission report.
Good choice! B. Confirmation.
C. Transaction report.
D. Prospectus.

Feedback: The exchange’s data transmission system reports the trade over the exchange’s ticker. It also provides the buying and selling
dealers with specific details of the trade, such as the time of the trade and the identity of the other firm. Details are relayed to the investment
advisors (IAs) who originated the transactions, and the IAs phone their clients to confirm the transaction. Each dealer sends a written
confirmation to its client that day or the next business day at the latest.

Reference | Chapter 9: Equity Securities: Equity Transactions

Learning Domain | Equity Transactions
75.In which three ways does the exchange-traded derivatives market differ from the over-the-counter (OTC) derivatives market?

Good choice! A. Clearinghouse performance guarantee, standardization and liquidity.

B. Clearinghouse performance guarantee, contract variety and privacy.
C. Contract variety, liquidity and mandatory physical settlement at expiration.
D. Standardization, privacy and marking-to-market of daily profits and losses.

Feedback: Clearinghouses, which are set up by exchanges to ensure that markets operate efficiently, guarantee the financial obligations of
every party and contract. In effect, the clearing corporation becomes the buyer for every seller, and the seller for every buyer.
Standardization allows users to offset their contracts prior to expiration and provides the backing of a clearinghouse.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

76.Why would an investor write an equity put option?

Good choice! A. Earn income.

B. Lock in the right to buy a stock at a stated price.
C. Have the right to sell the underlying stock.
D. Limit losses from a decline in the underlying stock.

Feedback: Investors write put options primarily for the income they provide. The income, in the form 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.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

77.An investor bought four LID March 40 call options for a premium of $4 when LID stock traded at $38 per share. The investor subsequently
sold his four calls for $4.60 when LID traded at $40 per share. What is the profit or loss on the transaction, ignoring any other costs or
considerations?

A. $460 loss.
B. $1,040 loss.
Good choice! C. $240 profit.
D. $800 profit.

Feedback: Cost of purchasing four LID call options is as follows: 4 x 100 x $4 = $1,600
Proceeds from selling four LID call options is as follows: 4 x 100 x $4.60 = $1,840
$1,840 – $1,600 = $240 profit.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

78.What is the usual time to expiration for a new rights issue?

Good choice! A. Four to six weeks.

B. Three to five years.
C. Six to eight months.
D. One to three years.

Feedback: Rights are usually very short term, with an expiration date often as little as four to six weeks after they are issued, while warrants
tend to be issued with three to five years to expiration.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives
79.What is a unique risk of an over-the-counter derivative?

A. Contract too standardized.

B. Increased volatility.
C. Uncertain delivery dates.
Good choice! D. Default risk.

Feedback: A downside to the private nature of OTC derivatives is that default or credit risk is a major concern. Default risk is the risk that
one of the parties to a derivative contract cannot meet its obligations to the other party.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

80.Charlie bought one FBK Jan 50 call for a total cost of $245. At expiration, what price would the shares of FBK have to be trading at for
Charlie to profit on his option purchase?

A. Above $50.00.
B. Below $47.55.
C. Below $50.00.
Good choice! D. Above $52.45.

Feedback: At expiration, the position is generating a profit above $52.45, as follows: $50 + $2.45 = $52.45.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

81.Amita purchases one March gold futures contract at US$1,000 per ounce. Each gold futures contract has an underlying asset of 100 ounces
of gold. The price of the gold futures increases to $1,040. What effect will this have on Amita’s futures account?

A. Her account balance will decrease by $40.

B. Her account balance will decrease by $4,000.
C. Her account balance will increase by $40.
Good choice! D. Her account balance will increase by $4,000.

Feedback: One of the important features of futures trading is the daily settlement of gains and losses. This process is known as marking to
market. At the end of each trading day, those who are long a contract make a payment to those who are short, or vice versa, depending on
the change in the contract’s price from the previous day. The underlying asset in this case is 100 ounces. Amita has made $4,000 [(1,040 –
1,000 = 40) x 100 x 1], which will be deposited into her account.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

82.The manager of an equity index fund knows that there will be an influx of capital from investors during RRSP season (January to February).
The firm’s economist is predicting that Canadian equity markets will rebound strongly in January. What could the fund manager do to reduce
the risk of having to purchase equity at higher prices in February when the new capital is received?

A. Sell Canadian interest rate futures to lock in the value of the capital.
B. Sell Canadian equity index futures.
Good choice! C. Buy Canadian equity index futures.
D. Buy Canadian interest rate futures to lock in the value of the capital.

Feedback: Corporations use futures to manage risk in the same way that investors do. When a company needs to lock in the purchase price
of an asset, they may decide to buy futures on the asset. The manager could buy an equity index future to hedge against the increase in
equity prices.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives
83.Investors have the following information concerning the warrants for the shares of Company A:
Market Price of Market Price of Exercise Price of
Shares Warrants Warrants

Company A $28 $2.25 $27.50

What is the time value of the Company A warrants?

Good choice! A. $1.75.

B. $0.00.
C. $2.25.
D. $0.50.

Feedback: Time value is that portion of a warrant’s price that cannot be attributed to an actual intrinsic value. If the exercise price of a
warrant is, as in this example, less than the market price of the warrant, then there is a benefit to exercising the warrant. You can pay less
with the warrant price than on the open market. However, the warrant itself has a cost, meaning that it is not cheaper to buy the warrant and
exercise it. The amount of the cost that is not in intrinsic value is the time value amount that you pay to gamble that the price of the stock will
appreciate sufficiently to give you a return on your investment in the warrant. As the warrant gets closer to expiry, and the length of time left
for your bet to pay off decreases, the time value also decreases. Here, the time value is calculated as follows: $28.00 – $27.50 = $0.50 in
intrinsic value; $2.25 – $0.50 = $1.75 in time value.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

84.What are the two basic types of derivative contracts?

A. Swap and forward contracts.

B. Option and futures contracts.
Good choice! C. Option and forward contracts.
D. Swap and futures contracts.

Feedback: All derivatives can be classified as either an option or a forward contract. A futures contract is nothing but an exchange-traded
forward contract, while a swap contract is simply a series of forward contracts bundled together into one contract.

Reference | Chapter 10: Derivatives

Learning Domain | Derivatives

85.NorJet Corp. is experiencing major financial difficulties and will be restructured. Two people will take control of the business through a trust
until the company can overcome its difficulties. What type of trust will be created?

A. Proxy trust.
B. Income trust.
Good choice! C. Voting trust.
D. Treasury trust.

Feedback: A corporation that is undergoing a restructuring due to financial difficulties may be placed under the control of a few individuals
through a voting trust, which is usually put into effect for specific periods of time, or until certain results have been achieved.

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements
86.Jenna is beginning a sportswear business. Her sister has offered to contribute start-up capital and manage the production side of the
business. What is the best type of business structure for Jenna and her sister?

A. Sole proprietorship.
Good choice! B. General partnership.
C. Capital partnership.
D. Limited partnership.

Feedback: There are two forms of partnership agreements: general partnership and limited partnership. While general partners are involved
in the day-to-day operations and are personally liable for all debts and obligations incurred in the course of business, a limited partner cannot
participate in the daily business activity and liability is limited to the partner’s investment.

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements

87.What section of a company’s financial statements includes information about its fixed assets, the various segments of its operations and
whether it uses derivatives for hedging purposes?

A. Supplemental information report.

Good choice! B. Notes to financial statements.
C. Auditor’s report.
D. Statement of cash flows.

Feedback: There is a considerable amount of detailed information which, in the shareholders’ interest, needs to be disclosed. If shown
directly in the financial statements themselves, it would result in their becoming so cluttered as to be unreadable. This information is usually
shown in a series of notes to financial statements. It is essential for an investor to have an understanding of these notes, as they provide
important details about the company’s financial condition. Items in a company’s notes include the statement of compliance with International
Financial Reporting Standards (IFRS), the accounting policies used, descriptions of fixed assets, share capital and long-term debt, as well as
commitments and contingencies. It is also in the notes to financial statements that a potential investor should look to ascertain whether the
company uses derivatives for hedging or other purposes.

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements

88.What is one purpose of the statement of changes in equity?

A. Reports interest paid during the period.

B. Reports what a company owns and what it owes.
C. Reports the settlement of debt during the current year.
Good choice! D. Provides a link between the statement of comprehensive income and the statement of financial
position.

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

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements
89.Which financial statement has the details of how a company’s financial position has changed from one period to the next?

A. Statement of changes in equity.

B. Statement of comprehensive income.
C. Statement of financial position.
Good choice! D. Statement of cash flows.

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 the company’s operating activities for the year, neither statement shows how the company’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 the
statement of comprehensive income by providing information about how the company generated and spent its cash during the year.

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements

90.Which method of depreciation deducts a larger dollar amount in the first few years than the last few years?

A. Straight line method.

Good choice! B. Declining balance method.
C. Amortization.
D. Depletion.

Feedback: There are several methods by which these amounts can be allocated to each accounting period. The declining balance method
applies a fixed percentage, rather than a fixed dollar amount, to the outstanding balance to determine the expense to be charged in each
period. This amount is deducted from the capital asset balance to determine the amount against which the percentage will be applied in the
subsequent period, thus the term declining balance.

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements

91.Which asset is assumed to maintain its value over time?

A. Capital equipment.
B. Trademarks.
Good choice! C. Land.
D. Mineral deposits.

Feedback: All assets except for land are assumed to lose their value over time due to wear and tear. Land is not depleted, depreciated or
otherwise amortized.

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements

92.At the start of the year, ABC Co. had a retained earnings balance of $4,200,000. At year end, the company reported $850,000 in net
earnings and $250,000 in common dividends paid. What is the balance in the retained earnings account at year end?

A. $5,300,000.00.
B. $4,200,000.00.
C. $5,050,000.00.
Good choice! D. $4,800,000.00.

Feedback: Retained earnings are profits earned over the years that have not been paid out to shareholders as dividends. These retained
profits accrue to the shareholders, but the directors can decide to reinvest them in the business. The retained earnings statement provides a
record of the profits kept in the business year after year. Profit for the current year is added to, or the loss is subtracted from, the balance of
retained earnings shown in the statement from the previous year. Dividends declared during the year are subtracted in this statement. For
this question, the balance is $4,800,000, which is calculated as $4,200,000 + $850,000 – $250,000.

Reference | Chapter 11: Corporations and their Financial Statements

Learning Domain | Corporations and their Financial Statements
93.Investment Dealer AAA submitted a non-competitive tender for $3 million of a new $500 million Government of Canada bond issue. What
amount of the issue will the dealer receive and at what price?

A. $1 million at the highest bid.

B. $0.00
Good choice! C. $3 million at the auction’s average yield.
D. $3 million at the lowest bid.

Feedback: The Government of Canada issues new fixed-coupon marketable bonds and Treasury bills to the market regularly through the
competitive tender system. The securities are issued by way of an auction, whereby the amount won at the auction is based on the bids
submitted. Bids can also be submitted on a non-competitive tender basis, whereby the bid is accepted in full by the Bank of Canada and
bonds are awarded at the auction average yield. The dealer will be awarded $3 million at the auction’s average yield.

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities

94.Ridwan wishes to buy a municipal bond issued by the city he lives in, but is disappointed when his advisor tells him there are none currently
available. How would his advisor explain why there are none to buy?

A. Cities are not allowed to issue bonds as they must balance their budget each year.
B. Demand is very high for these bonds as they are tax exempt.
C. Municipal bonds can only be sold to exempt investors with a high net worth.
Good choice! D. Municipal bonds are usually sold directly to institutional portfolios and pension funds.

Feedback: Municipal bond and debenture issues are more likely to be placed in institutional portfolios and pension accounts.

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities

95.PSM Inc. has authorized share capital of 50 million shares. In its initial public offering (IPO), the company sold 20 million shares. A private
pension plan purchased 8 million shares of the IPO, which it still holds. Several years later, PSM. Inc. bought back 5 million shares. How
many shares are outstanding?

A. 7 million.
B. 20 million.
Good choice! C. 15 million.
D. 50 million.

Feedback: PSM Inc. would have 15 million shares outstanding (20 million shares issued – 5 million shares repurchased).

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities

96.An investment dealer has just become the broker of record for a large corporation. What advantage does this relationship give to the
dealer?

A. The dealer avoids any liability when selling the new issue.
B. The dealer can request escrowed shares as compensation.
C. The dealer does not need to file a preliminary prospectus.
Good choice! D. The dealer has the right of first refusal on new financings planned by the corporation.

Feedback: It gives the dealer the right of first refusal on new financings planned by the corporation.

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities
97.HGM Inc. is selling shares to raise cash. Instead of paying cash for services related to the new offering, it allocates shares held by a trustee
to certain suppliers. What are these shares called?

A. Deferred shares.
Good choice! B. Escrowed shares.
C. Junior shares.
D. Trusteed shares.

Feedback: Escrowed shares serve as payment for properties, goods or services. They are shares held by an independent trustee in trust for
its owner that cannot be sold or transferred unless special approval is given.

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities

98.What is the stage in the new issue process that has been reached when a new issue of a stock has been given clearance by the regulators
to be sold to the investing public?

A. Proxy.
B. Primary.
Good choice! C. Blue skyed.
D. Greensheet.

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

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities

99.What is the document an underwriter creates to inform its internal salespeople about the advantages and disadvantages of a new issue that
is going to be sold to the public?

A. Listing agreement.
B. Offering memorandum.
C. Preliminary prospectus.
Good choice! D. Greensheet.

Feedback: The underwriter prepares an information circular, for in-house use only, called a greensheet. For sales representatives, the
greensheet highlights the salient features of the new issue, both the pros and cons, in order to successfully solicit interest to the general
public.

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities
100.Select the disadvantages of a company becoming listed.

1. The company incurs listing and sustaining fees.

2. Decreases the company’s potential value of goodwill.
3. Imposes additional controls on the company’s management.
4. Decreases the visibility of the company's market value.

A. 2 and 4.
B. 3 and 4.
C. 1 and 2.
Good choice! D. 1 and 3.

Feedback: For a public company, there are both advantages and disadvantages associated with listing. One of the disadvantages is the
additional control imposed on management. After listing, various fees, including a listing fee and subsequent annual sustaining fee, must be
paid to the exchange(s) when a class of shares is listed.

Reference | Chapter 12: Financing and Listing Securities

Learning Domain | Financing and Listing Securities