MichaelHlinka.

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Canadian Securities Course Volume Two Examination #2

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In this Examination:

• Chapters 13 & 14: 18 questions (1 – 18)

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• Chapters 15 & 16: 18 questions (19 – 36)

• Chapters 17 & 18: 14 questions (37 – 50)

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• Chapter 19: 10 questions (51 – 60)

• Chapters 20 – 23: 16 questions (61 – 76)

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• Chapter 24: 6 questions (77 – 82)

• Chapters 25 & 26: 8 questions (83 – 90)

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• Chapter 27: 10 questions (91 – 100)
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1. Which stock market theory reaches the conclusion that past mistakes can be
avoided by using available information?

a) Random walk theory

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b) Efficient market hypothesis
c) Rational expectations hypothesis
d) No stock market theory concludes that past mistakes can be avoided.

2. Which variation of the efficient market hypothesis argues that inside information
could be of value to investors?

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a) Strong form only
b) Semi-strong form only

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c) Weak form only
d) Both semi-strong and weak forms

3. In what stage of the industry life cycle is it most likely that companies will pay
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dividends that will increase steadily?

a) Emerging growth
b) Growth
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c) Mature
d) Decline
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4. Which of the following is not one of the five competitive forces identified by
Michael Porter?
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a) Technology
b) Competitive rivalry
c) Threat of new entry
d) Threat of substitutes
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5. Which of the following TSX listed company would most likely be characterized
as a defensive, blue-chip company?
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a) Royal Bank
b) Magna (auto parts)
c) SunLife (insurance)
d) Hydro One (utility company)

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6. Which of the following is not one of the three assumptions underlying technical
analysis?

a) The future repeats the past.

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b) The increased volatility of markets makes analysts favour technical analysis.
c) Prices move in trends and those trends tend to persist for relatively long
periods of time.
d) All influences on market action are automatically accounted for or discounted
in price activity.

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7. A resistance level is best understood as…

a) the top price of the trading range, where supply exceeds demand.

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b) the top price of the trading range, where demand exceeds supply.
c) the bottom price of the trading range, where supply exceeds demand.
d) the bottom price of the trading range, where demand exceeds supply.

8.
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When an analyst looks at a chart and the price breaks the moving average line
from above on heavy volume, she would conclude that this is a…

a) weak buy signal.

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b) strong buy signal.
c) weak well signal.
d) strong sell signal.
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9. What is a complicating factor of cycle analysis?

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a) There are four categories of cycle lengths.

b) Not everyone can agree on the duration of cycles.
c) It has to be supplemented by other technical tools.
d) At any given point in time, a number of cycles may be operating.
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10. Which of the following is not a positive reason for a low dividend payout ratio?

a) Earnings are growing rapidly.

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b) Earnings are based on resources being depleted.

c) Company policy is to buy back shares rather than pay dividends.
d) Earnings are being reinvested back into a growth company’s operations.

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11. Liquidity of common shares would be of greatest interest to…

a) retail investors.
b) institutional investors.

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c) both retail and institutional investors.
d) neither retail nor institutional investors.

12. Which of the following statements about the current ratio would you agree with?

a) It does not translate easily into multiples.

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b) This is the strictest of the two major liquidity ratios.
c) A current ratio of 4:1 should be understood as twice as good as 2:1.
d) The difference between the current ratio and quick ratio is that the quick ratio

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excludes accounts receivables from current assets.

13. In order to calculate the asset coverage ratio, it is necessary to deduct…

a)
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all current liabilities from total assets.
b) current liabilities less short-term debt from total assets.
c) all current liabilities from tangible assets.
d) current liabilities less short-term debt from tangible assets.
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14. What is generally considered to be the most important quantitative test of risk
when considering a debt security?
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a) debt-equity
b) asset coverage
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c) interest coverage
d) cash flow-to-total debt outstanding

15. The numerator of the inventory turnover ratio is…

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a) revenue
b) gross profit
c) cost of sales
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d) inventory

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16. Darkhorse Incorporated reported net income of $20 million. In addition to its 3
million issued and outstanding shares, it has 200,000 $100 par value preferred
shares that are currently trading at $120 that have a 6% dividend yield.
Darkhorse’s fully diluted EPS would be closest to:

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a) $6.20
b) $6.25.
c) $6.50.
d) $6.67.

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17. Pspi Kola is currently trading at $120. Its projected EPS next year is $5 and it
has historically maintained a dividend payout ratio of 60%. Its required rate of
return is 8% and its growth rate is projected to be 5%. According to the dividend

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discount model:

a) the security should be purchased because its payout ratio exceeds 50%.
b) the security should be purchased because its intrinsic value is $167.
c)
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the security should not be purchased because intrinsic value is $100.
d) the security should not be purchased because its required rate of return
exceeds its growth rate.
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18. Which of the following is not one of the key tests that analysts use to assess the
investment quality of preferred shares?
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a) Credit assessment
b) Dividend payments
c) Price-to-earnings ratio
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d) Equity per preferred share

19. An investor purchased a stock for $90 and received a special, one-time
dividend of $5, then sold the security for $88. Her holding period return
would be:
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a) 3.3%.
b) 3.4%.
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c) 7.8%.
d) 7.9%.

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20. A risk-averse investor has decided to invest solely in government of Canada t-

bills. What risk would he be most concerned about?

a) Political risk

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b) Liquidity risk
c) Interest rate risk
d) Inflation rate risk

21. You are an investment advisor and a potential client shows you her current
holdings. She has invested passively in both North American markets. You

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would conclude…

a) she is more concerned with systematic risk than non-systematic risk.

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b) she is equally concerned with systematic risk and non-systematic risk.
c) she is more concerned with non-systematic risk than systematic risk.
d) You could not conclude anything without more information.

22.
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In the contraction phase of the business cycle, an equity investor would prefer to
have a portfolio with a…

a) low beta and low alpha.

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b) low beta and high alpha.
c) high beta and low alpha.
d) high beta and high alpha.
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23. Which equity manager style is most likely to employ a top-down approach?
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a) Value managers
b) Growth managers
c) Sector rotator managers
d) Value managers and growth managers
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24. An investor has a broadly diversified portfolio of 100 securities. Its expected
return is 8% and its risk, as measured by standard deviation, is 16%. There are
three securities that he is considering at this moment in time:
Security 1 expected return is 8% and correlation with existing portfolio is –1.

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Security 2 expected return is 9% and correlation with existing portfolio is 0.
Security 3 expected return is 10% and correlation with existing portfolio is 1.

He makes the following statements:

Statement 1

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Adding Security 1 will not impact the portfolio’s expected return; however it will
provide diversification benefits.

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Statement 2
Adding Security 2 will increase the portfolio’s return; however it will not provide
diversification benefits.

Statement 3
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Adding Security 3 will increase the portfolio’s expected return; however it will not
provide diversification benefits.
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Which of those Statements would you agree with?

a) Statement 1 only
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b) Statement 1 & Statement 3 only

c) Statement 2 & Statement 3 only
d) Statement 1, Statement 2 & Statement 3
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25. What is another term for high-yield bonds?

a) Junk
b) Risky
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c) Highly risky
d) Default-likely
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26. What is the first step in the portfolio management process?

a) Designing an investment policy statement

b) Determining investment objectives and constraints

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c) Monitoring the client, the market, and the economy
d) Meeting with the client and determining the asset mix

27. An investment manager is meeting with a potential client for the first time. The
manager notes that the client is almost entirely invested in a diversified portfolio
of preferred shares. Based on this allocation, the investment manager would

.c
conclude that the 1) primary and 2) secondary investment objectives are:

a) 1) growth and 2) liquidity

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b) 1) growth and 2) tax avoidance
c) 1) income and 2) liquidity
d) 1) income and 2) tax avoidance

28.
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What is the important distinction between equities classified as “Venture” and
equities classified as “Speculative”?

a) Venture companies pay dividends while speculative companies do not.

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b) Venture companies have a limited earnings history while speculative
companies have no earnings.
c) Venture companies have very low market capitalizations while
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speculative companies have higher market caps.

d) There is no meaningful distinction between venture and speculative
companies.
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29. The Investment Policy Statement (IPS) is least likely to include:

a) asset allocation.
b) acceptable investments.
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c) operating rules and guidelines.

d) The IPS would include all of the above matters.
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30. For portfolio management purposes, all of the following are considered fixed
income products except:

a) strip bonds.

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b) preferred shares.
c) convertible bonds.
d) mortgage-backed securities.

31. In the contraction phase of the equity cycle, the preferred investment strategy
would be to…

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a) lengthen term of bond holdings and avoid or reduce stock exposure.
b) lengthen term of bond holdings and increase exposure to defensive stocks.

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c) sell long-term bonds and overweight cyclical stocks.
d) sell long-term bonds and invest in short-term interest-bearing paper.

32. Mario Bonelli is a middle-aged contractor, married with three children. An

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appropriate asset allocation for him would be:

a) 70% equities, 20% bonds, and 10% cash

b) 60% equities and 40% bonds
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c) 50% equities, 40% bonds, and 10% cash
d) 34% equities, 33% bonds, and 33% cash
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33. A $400,000 portfolio began the year with an allocation of 75% equities, 20%
bonds, and 5% cash. In the course of the year, the equity portion increased by
10%, bonds increased by 4%, and cash grew by 2%. In order to bring back the
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portfolio to the base policy mix, the manager would be required to…

a) sell $4,800 worth of equities and buy $3,520 worth of bonds and buy $1,280
worth of cash.
b) sell $3,800 worth of equities and buy $2,580 worth of bonds and buy $1,220
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worth of cash.
c) sell $2,500 worth of equities and buy $2,000 worth of bonds and buy $500
worth of cash.
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d) sell $1,800 worth of equities and buy $1,680 worth of bonds and buy $120
worth of cash.

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 MichaelHlinka.com

34. The asset allocation strategy that allows for short-term deviations from the base
policy mix is understood as…

a) tactical asset allocation.

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b) dynamic asset allocation.
c) variable asset allocation.
d) strategic asset allocation.

35. There is a portfolio that is equally divided between equities and bonds. The
manager’s expectation is that stock prices will increase by 5% and dividend

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yields are expected to be 3%. The income from bonds will be 4% and the
duration of the bond portfolio is 6, and interest rates should increase by 50 basis
points.

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The portfolio’s return is closest to:

a) 4.0%.
b) 4.5%.
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c) 5.0%.
d) 6.0%.
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36. An investment manager is presented with three different portfolios with different
expected returns and standard deviations:
Expected return Standard deviation
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Portfolio 1 5% 6%
Portfolio 2 8% 12%
Portfolio 3 10% 20%
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The risk-free rate is 2%.

According to the Sharpe ratio, the preferred portfolio is:

a) Portfolio 1 with a Sharpe ratio of .83.

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b) Portfolio 2 with a Sharpe ratio of .50.

c) Portfolio 3 with a Sharpe ratio of 2.0.
d) The preferred portfolio could be Portfolio 1 or 2.
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37. As a general rule, one of the disadvantages of mutual fund investing is short-term
unsuitability. Which mutual fund is an exception to this general rule?

a) equity funds
b) balanced funds

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c) target date funds
d) money market funds

38. What is the benefit of structuring a mutual fund as a trust?

a) It allows more capital to be pooled.

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b) It enables the fund itself to avoid taxation.
c) It means that investors can transfer between funds at no charge.
d) It means that liquidity is guaranteed through the right of redemption.

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39. In the organization of a mutual fund, which party is responsible for supervising
shareholder or unitholder record-keeping?

a) Custodian
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b) Distributor
c) Fund manager
d) Directors and trustees
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40. Which of the following most accurately captures the frequency of the calculation
of a mutual fund’s NAVPS?
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a) Regulation requires that new funds calculate NAVPS daily.

b) Regulation requires that new funds calculate NAVPS weekly; however most
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funds calculate NAVPS daily.

c) Regulation requires that new funds calculate NAVPS monthly; however most
funds calculate NAVPS daily.
d) Regulation requires that new funds calculate NAVPS monthly; however most
funds calculate NAVPS weekly.
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41. Trailer fees or service fees exist to incentivize…

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a) distributors.
b) fund managers.
c) both distributors and fund managers.
d) Trailer fees are not associated with mutual funds.

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42. Place, in order, from lowest to highest, the management fees associated with the
following mutual funds:

a) equity funds, index funds, and money market funds

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b) index funds, equity funds, and money market funds
c) money market funds, index funds, and equity funds
d) money market funds, equity funds, and index funds

43. Which of the following documents must be delivered to the buyer of a mutual
fund upon request?

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a) Simplified prospectus only
b) Annual information form only

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c) Simplified prospectus and annual information form
d) There is no requirement to deliver any of these documents.

44. A mutual fund representative has to notify the provincial securities administrators
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within five days of any of the following exchanges except:

a) Criminal charges
b) Change of address
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c) Personal bankruptcy
d) Change of telephone number
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45. Know Your Product (KYP) provisions apply to which of the following actions?

a) Purchasing/selling a product only

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b) Purchasing/selling a product and recommending a product

c) Purchasing/selling a product, recommending a product, and placing a
product on the firm’s product shelf
d) Purchasing/selling a product, recommending a product, placing a product on
the firm’s product shelf, and advertising/promoting a product
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46. What is an unique feature of money market funds?

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a) They always maintain their NAV at $10.

b) There is no risk associated with money market funds.
c) They are always redeemable at their Net Asset Value.
d) Distributions received from money market funds are taxable.

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 MichaelHlinka.com

47. A 30-year old investor buys a target date fund and the original allocation is 75%
equities and 25% bonds. As the years pass, we would expect that…

a) the value of the fund increases and the allocation to equities decreases.

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b) the value of the fund increases and the allocation to equities remains
constant.
c) the value of the fund increases and the allocation to equities increases.
d) the value of the fund remains constant the allocation to equities deceases.

48. Which of the following statements about passive and active management

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strategies are you most likely to agree with?

a) Passive managers believe that markets are efficient and follow some form of

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an indexing strategy.
b) Active managers believe that markets are efficient and it is possible to beat
the benchmark on a risk-adjusted basis.
c) Passive managers believe that markets are inefficient and therefore the goal
is to minimize fees.
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d) Active manager believe that markets are inefficient and look to closely
replicate the market weights by industry sector.
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49. Joanne purchased $20,000 worth of mutual funds. Over the years, she received
$6,000 in distribution, then when the units were worth $30,000, she sold half of
them. The capital gain she would report is closest to:
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a) $1,000.
b) $2,000.
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c) $3,000.
d) $4,000.

50. A life-expectancy adjusted withdrawal plan is most similar to a…

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a) ratio withdrawal plan.

b) fixed-dollar withdrawal plan.
c) percentage withdrawal plan.
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d) fixed-period withdrawal plan.

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51. What is a key reason why EFTs are relatively cheap in terms of MERs compared
to mutual funds?

a) ETFs follow an indexing strategy.

b) Designated brokers pay trading costs.

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c) ETFs are created and redeemed in blocks of units.
d) It is not true that the MERs of ETFs are cheaper than the MERs of mutual
funds.

52. What is the reason why tracking error for most ETFs is usually less than that of
mutual funds?

.c
a) Arbitrage
b) Lower costs

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c) Less diversification
d) Greater diversification

53. What are the two methods that standard exchange-traded funds use to track an
index?
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a) Optimization and Sampling
b) Full Replication and Sampling
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c) Sampling and Stratified Sampling
d) Optimization and Stratified Sampling
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54. Which of the following types of ETFs would be constructed with derivative
products, such as swaps?
ha

a) Synthetic
b) Leveraged
c) Rules-based
d) Covered call
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55. Which of the following is not one of the three types of commodity exchange-
traded funds?
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a) Equity-based ETFs
b) Futures-based ETFs
c) Physical-based ETFs
d) Derivative-based ETFs

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56. Cash drag is…

a) a smaller problem for mutual funds compared to ETFs.

b) a similar problem for mutual funds compared to ETFs.

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c) a bigger problem for mutual funds compared to ETFs.
d) a similar problem for index funds, but otherwise a bigger problem for mutual
funds compared to ETFs.

57. Rebalancing is…

.c
a) less of an issue for equal-weighted indexes.
b) less of an issue for market-capitalization indexes.
c) an equal issue for equal-weighted and market-capitalization indexes.

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d) It depends on the number of securities in the index.

58. Which of the following statements comparing exchange-traded funds to mutual

funds are you least likely to agree with?
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a) ETFs provide full transparency while most mutual funds disclose holdings
once a month.
b) ETFs are more tax efficient because of lower portfolio turnover compared to
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mutual funds.
c) The volume traded on an ETF is a measure of liquidity while liquidity for a
mutual fund is guaranteed.
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d) Only some ETFs offer dividend reinvestment plans while most mutual funds
offer a dividend reinvestment plan.
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59. There is an ETF that is currently priced at $20 when an investor buys 100 units.
After making the purchase, the ETF is still priced at $20 when the ETF declares a
distribution that is deemed a return of investment capital of $1 per unit. What are
the tax implications to the investor?
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a) This would be a taxable event of $1 and the ACB would be $19.

b) This would be a taxable event of $1 and the ACB would be $20.
c) This would not be a taxable event of $1 and the ACB would be $19.
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d) This would not be a taxable event of $1 and the ACB would be $20.

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60. Which of the following statements about exchange-traded notes (ETNs) are you
most likely to agree with?

a) ETNs are investment funds.

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b) ETNs do not face credit risk.
c) ETNs have moderate tracking error.
d) ETNs can face call or early redemption risk.

61. Which of the following is not one of the three main reasons to invest in alternative
investments?

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a) Diversification
b) Increasing alpha

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c) Increasing absolute returns
d) Reducing management fees

62. What is the risk measure for the efficient frontier?

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a) Beta
b) Drawdown
c) Semi-deviation
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d) Standard deviation

63. All of the following should be understood as second order risks except:
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a) Systematic
b) Counterparty
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c) Concentration
d) Trading Model

64. In the hedge fund structure, 1) high water marks and 2) hurdle rates, benefit the:
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a) 1) investor & 2) investor

b) 1) investor & 2) fund manager
c) 1) fund manager & 2) investor
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d) 1) fund manager & 2) fund manager

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65. With an equity market-neutral strategy, the investor would prefer which of the
following?

a) Beta equals zero and alphas are low

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b) Beta equals zero and alphas are high
c) Beta equals one and alphas are low
d) Beta equals one and alphas are high

66. The merger (risk arbitrage) strategy generally involves…

.c
a) taking a long position in the acquiring company and a long position in the
company being acquired.
b) taking a short position in the acquiring company and a short position in the

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company being acquired.
c) taking a long position in the acquiring company and a short position in the
company being acquired.
d) taking a short position in the acquiring company and a long position in the
company being acquired.
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67. What are the two different styles of analysis that global macro hedge fund
managers employ?
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a) Technical and fundamental
b) Discretionary and systematic
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c) Fundamental and discretionary

d) Discretionary and non-systematic
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68. Which of the following is least likely to be one of the primary areas of inquiry into
the due diligence process for alternative investments?

a) Fees
b) Operations
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c) Risk analysis
d) Liquidity needs
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69. What are the minimum and maximum maturity guarantees for a segregated
fund?

a) 50% minimum and 75% maximum over a 5-year contract.

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b) 75% minimum and 100% maximum over a 10-year contract.
c) 50% minimum and 75% maximum over a 5-year contract.
d) 75% minimum and 100% maximum over a 10-year contract.

70. What is the main disclosure document for segregated funds?

.c
a) Fund facts
b) Prospectus
c) Information folder

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d) Offering memorandum

71. What is a major benefit of real estate investment trusts (REITs) compared to
other forms of real estate investing?
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a) Liquidity
b) Diversification
c) Capital growth
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d) Steady income stream

72. Mezzanine financing in private equity is usually…

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a) senior debt.
b) secured loans.
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c) convertible preferred shares.

d) unsecured preferred equity or subordinated loans.

73. Which of the following is least likely to be understood as a disadvantage of

structured products?
ic

a) Illiquidity
b) Complexity
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c) Concentration risk
d) Build-in cost structure

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74. When an investor is looking to invest in a principal-protected note, she would

favour those products with…

a) low participation rates and low performance caps.

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b) low participation rates and high performance caps.
c) high participation rates and low performance caps.
d) high participation rates and high performance caps.

75. Which of the following statements about the standard securitization scheme are
you least likely to agree with?

.c
a) The three tiers are: Senior, Mezzanine, and Junior
b) The Senior Tranche has the least amount of risk and lowest expected return.

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c) Until the Mezzanine Tranche is full paid, the junior tranche is not entitled to
any interest payments.
d) The Junior Tranche is normally the largest of three and it assumes the
greatest amount of credit risk and enjoys the highest expected return.
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76. Which of the following is least likely to be understood as a benefit of investing in
mortgage-backed securities?
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a) Prepayment possibility
b) Guaranteed monthly payments
c) Low minimum investment required
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d) Fully guaranteed by Government of Canada

77. There is an investor with a margin tax rate of 26%. In the current tax year, he
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has $10,000 of realized capital gains and $9,000 of dividend income. In terms of
his tax liability:

a) he would owe $1,300 in taxes on capital gains and $1,364 on dividend

income.
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b) he would owe $1,300 in taxes on capital gains and $2,340 on dividend

income.
c) he would owe $2,600 in taxes on capital gains and $1,364 on dividend
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income.
d) he would owe $2,600 in taxes on capital gains and $2,340 on dividend
income.

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78. An investor purchased shares on Friday December 22nd at $20 per share. The
company announced disappointing results on a clinical trial on December 28th,
and the shares plummeted to $12 per share almost immediately. Because he
had substantial capital gains, he sold the shares at the market upon opening on

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Friday December 29th. Then he has told by his accountant that he would not be
able to claim that capital loss this calendar year.

Which of the following best explains why?

a) This would be considered a superficial loss because he had not held the

.c
shares for 90 days.
b) This would be considered a superficial loss and, moreover, the trade would
not settle in the current calendar year.

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c) He would not be able to claim the loss this calendar year because the trade
would not settle in the current calendar year.
d) His accountant is incorrect: He would be able to claim the loss in the current
calendar year.
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79. Which of the following statements about termination of a registered retirement
savings plan are you most likely to agree with?
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a) Deregistration is mandatory during the calendar year the plan holder reaches
age 65.
b) Deregistration is mandatory during the calendar year the plan holder reaches
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age 71.
c) Deregistration is mandatory during the calendar year the plan holder reaches
age 80.
ha

d) It is not necessary to terminate a registered retirement savings plan provided

that the proceeds are transferred into a registered retirement income fund.
ic
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80. Which of the following statements about tax-free savings accounts are you most
likely to agree with?

a) The money contributed is tax-deductible up to annual limits.

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b) When you withdraw money from a tax-free savings account, there are no
withholding taxes applied.
c) When you withdraw money from your tax-free savings account, the
withdrawal amounts cannot be re-contributed.
d) Any resident of Canada who is at least 16 years old, can open a TSFA and
contributions can come from any source.

.c
81. Which of the following statements about registered education savings plans are
you most likely to agree with?

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a) There is no lifetime maximum contribution.
b) If beneficiaries do not attend qualifying programs, they can withdraw the
funds, but will be taxed.
c)
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The Canada Education Savings Grant (CESG) provides matching grants up
to a maximum of $7,200 per beneficiary.
d) All of the above statements are accurate and should be agreed with.
H
82. Attribution rules are most closely associated with…

a) making loans.
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b) splitting income.
c) paying expenses.
d) transferring income.
ha

83. Which of the following is least likely one of the advantages associated with
fee-based accounts?

a) Greater trust
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b) More services
c) More frequent trading
d) Payment tied to performance
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84. A team of professionals handling all of a high-net-worth client’s financial affairs

within one central location is known as a….

a) household account.

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b) private family office.
c) separately managed account.
d) multi-mandate managed account.

85. How frequently are fees generally paid out for full-service brokerage accounts?

.c
a) Weekly
b) Monthly
c) Quarterly

ka
d) Annually

86. Which of the following services are not provided under the Direct Guidance
Model?
lin
a) Rebalancing
b) Unlimited trading
c) Building/monitoring an asset allocation
H
d) Investment recommendation, alerts, and reminders

87. Which of the following is least likely a stated objective of any financial plan?
el

a) It should be achievable.
b) It should guarantee a secure retirement.
ha

c) It should accommodate changes in income and lifestyle.

d) It should provide not only for necessities, but rewards as well.

88. According to the Life Cycle Hypothesis, the allocation to equities in the Family
Commitment Years should range from:
ic

a) 0% to 50%.
b) 20% to 100%.
M

c) 30% to 60%.
d) 60% to 80%.

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89. What is the term that describes an individual that dies without a will, or having
made a will that was revoked?

a) Probate

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b) Testator
c) Intestate
d) Executor

90. Alison Yao is an investment advisor with Epsilon Securities. For months she has
been trying to bring on social influencer, Melissa Chan, as a client. That

.c
afternoon, Melissa signed a contract to formalize the relationship, and started the
process of transferring over her $500,000 portfolio. That evening, Alison
tweeted the following: “Thrilled to announce that Social Influencer Melissa Chan

ka
is now a client of mine!”

Is this tweet a violation of the Standards of Conduct?

a)
lin
It would be a violation under all circumstances.
b) It would not be a violation if Melissa had given permission.
c) No, it would never be a violation because Chan is merely stating a fact.
d) This itself is not a violation, but it would have been a violation if Alison had
H
mentioned the size of her portfolio.

91. Which of the following pairs of institutional clients are most similar to one
el

another?

a) Trusts and endowments

ha

b) Hedge funds and pension funds

c) Investment dealers and endowments
d) Corporate treasuries and mutual funds

92. Direct electronic access arrangements are used most frequently by…
ic

a) retail sell-side clients.

b) retail buy-side clients.
M

c) institutional sell-side clients.

d) institutional buy-side clients.

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93. Which of the following functions is not considered part of the Middle Office
operations of a sell-side trading firm?

a) Risk management

om
b) Corporate treasury
c) Legal and compliance
d) Information technology

94. The use of computers to generate and execute simultaneous stock market, and
often derivative orders, is known as…

.c
a) program trading.
b) prime brokerage.

ka
c) structured finance.
d) equity trading services.

95. How would we most frequently determine the liquidity of a particular equity
security?
lin
a) Daily trading volume
b) Weekly trading volume
H
c) Size of the bid-ask spread
d) Number of market makers assigned to the equity
el

96. The process of bringing new debt issues to the market is known as…

a) origination.
ha

b) initial public offering.

c) soft-dollar arrangement.
d) fixed income underwriting.

97. The continuous, real-time investment management database that tracks all
ic

securities transactions is known as…

a) soft-dollar arrangements.
M

b) straight-through processing.
c) clearing and settlement systems.
d) direct electronic settlement systems.

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 MichaelHlinka.com

98. Which of the following areas of a dealer’s business is the investment banker least
likely to be responsible for?

a) Order flow

om
b) Public finance
c) Corporate finance
d) Mergers and acquisitions

99. Large trades, executed for institutional clients, are known as…

.c
a) block trades.
b) liability trades.
c) agency trades.

ka
d) market impact trades.

100. What is the ultimate goal of algorithmic trading?

a)
lin
To execute trades as quickly as possible.
b) To execute trades and minimize commissions.
c) To execute trades without conveying information.
d) To execute trades in order to reduce market impact.
H
el
ha
ic
M

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 MichaelHlinka.com

Answer Key – Examination #2, CSC Volume 2

1.C 13 – 4.

2.D 13 – 5.

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3.C 13 – 10/11.

4.A 13 – 11.

5.D 13 – 12.

.c
6.B 13 – 13.

ka
7.A 13 – 15.

8.D 13 – 20.
lin
9.D 13 – 21.

10.B 14 – 4.
H
11.B 14 – 6/7.

12.A 14 – 10/11.
el

13.D 14 – 12/13.
ha

14.C 14 – 12/15.

15.C 14 – 17/18.

16.B 14 – 19/20.
ic

$20,000,000 – (200,000 x $100 x .06) = $6.27

3,000,000
M

17.C 14 – 24/25.
Dividend = $5 x .6 = $3/(8% – 5%) = $100

18.C 14 – 25/26.

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 MichaelHlinka.com

19.A 15 – 4/5.
$88 + $5 – $90 x 100 = 3.3%
$90

om
20.A 15 – 7/8.

21.C 15 – 8.

22.B 15 – 11/12.

.c
23.C 15 – 13/16.

ka
24.B 15 – 10/11.

25.A 15 – 16.

26.B 16 – 3.
lin
27.D 16 – 5/6.
H
28.B 16 – 8.

29.D 16 – 9.
el

30.C 16 – 10.
ha

31.A 16 – 15.

32.C 16 – 17/18.

33.A 16 – 19/20.
ic

Beginning equities: $300,000

Beginning bonds: $80,000
Beginning cash: $20,000
M

Ending equities: $330,000

Ending bonds: $83,200
Ending cash: $20,400
Rebalancing: Sell $4,800 equities, buy $3,520 bonds & buy $1,280 cash

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 MichaelHlinka.com

34.A 16 – 20.

35.B 16 – 21/22.
50% x .08% + 50% x .04% – 50% x .06 x .5 = 4.5%

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36.D 16 – 23/24.
Portfolio 1 Sharpe Ratio: (5% – 2%)/6% = .50
Portfolio 2 Sharpe Ratio: (8% – 2%)/12% = .50
Portfolio 3 Sharpe Ratio: (10% – 2%)/20% = .40

.c
37.D 17 – 7/8

38.B 17 – 8.

ka
39.C 17 – 9/10.

40.B 17 – 10/11.
lin
41.A 17 – 12.

42.C 17 – 13/14.
H
43.C 17 – 16.
el

44.D 17 – 20/21.

45.D 17 – 26/27.
ha

46.A 18 – 3/4.

47.A 18 – 7.
ic

48.A 18 – 9/10.

49.B 18 – 12.
M

The cost base of the units would be $20,000 + $6,000 = $26,000

Half of that is $13,000… $15,000 – $13,000 = $2,000

50.D 18 – 14/16.

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 MichaelHlinka.com

51.B 19 – 4/5.

52.B 19 – 8.

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53.B 19 – 10.

54.A 19 – 11/12.

55.D 19 – 13.

.c
56.C 19 – 16.

57.B 19 – 16.

ka
58.C 19 – 18/19.

59.C 19 – 21.
lin
60.D 19 – 23.

61.D 20 – 6.
H
62.D 20 – 7/8.
el

63.A 20 – 10/11.

64.A 20 – 13/14.
ha

65.B 21 – 4.

66.D 21 – 16/17.
ic

67.B 21 – 20/21.

68.D 21 – 31/35.
M

69.D 22 – 5.

70.C 22 – 8/9.

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 MichaelHlinka.com

71.A 22 – 14/15.

72.D 22 – 16.

om
73.C 23 – 4.

74.D 23 – 6/7.

75.D 23 – 14/15.

.c
76.A 23 – 18.

77.A 24 – 4/7.

ka
Taxes on capital gains: $10,000 x .5 x .26 = $1,300
Taxes on dividends: ($9,000 x 1.38) x (.26 – .1502) = $1,364

78.C 24 – 14.
lin
79.B 24 – 20.

80.B 24 – 22/23.
H
81.C 24 – 23/24.
el

82.D 24 – 25/27.

83.C 25 – 3.
ha

84.B 25 – 10.

85.C 25 – 11.
ic

86.A 25 – 11.

87.B 26 – 3.
M

88.D 26 – 8/10.

89.C 26 – 12/17.

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 MichaelHlinka.com

90.B 26 – 17/24.

91.A 27 – 5/7.

om
92.D 27 – 7/8.

93.D 27 – 10/11.

94.A 27 – 12/14.

.c
95.C 27 – 15/16.

96.A 27 – 17.

ka
97.B 27 – 19.

98.A 27 – 21.
lin
99.A 27 – 23.

100.D 27 – 29/30.
H
el
ha
ic
M

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