CSI CSC1 Practice Test Questions Answers

When a security price increases in a long margin position, the equity in the margin account increases. The investor gains additional buying power and may withdraw excess margin, which represents the difference between the current equity and the margin requirement.

Option A:Incorrect; the investor would incur gains, not losses.

Option B:Incorrect; interest is charged on borrowed amounts, not excess margin.

Option C:Incorrect; additional funds are not required when equity rises.

The approximate price change of a bond due to a change in interest rates can be estimated using the formula:

Price Change (%)=−Duration×ΔInterest Rate\text{Price Change (\%)} = - \text{Duration} \times \Delta \text{Interest Rate}Price Change (%)=−Duration×ΔInterest Rate

Given:

Duration= 5

Current Price= $103

Change in Interest Rate(Δ\DeltaΔ) = 2% or 0.02

Price Change (%)=−5×0.02=−0.10 (−10%)\text{Price Change (\%)} = -5 \times 0.02 = -0.10 \, (-10\%)Price Change (%)=−5×0.02=−0.10(−10%)

The new price is calculated as:

New Price=Current Price×(1+Price Change)=103×(1−0.10)=103×0.90=97.85\text{New Price} = \text{Current Price} \times (1 + \text{Price Change}) = 103 \times (1 - 0.10) = 103 \times 0.90 = 97.85New Price=Current Price×(1+Price Change)=103×(1−0.10)=103×0.90=97.85

A. $108.15andB. $113.30: These represent price increases, which are incorrect for rising interest rates.

D. $92.70: This reflects a greater-than-actual price drop, which is inconsistent with the duration-based calculation.

Listing on a public exchange provides companies with access to a broader pool of potential investors. This increased visibility enhances the ability to raise capital through the issuance of shares or bonds. Although there are additional costs associated with being publicly listed (such as listing fees and compliance costs), the benefits of access to new sources of funding and improved liquidity for shares often outweigh these concerns.

A. Management will benefit from the public disclosure of changes in the company: Public disclosure does not directly benefit management but is a requirement for transparency.

C. Listing the company will require restrictions on stock options issued for internal use: While stock option plans may be regulated, this is not a primary consideration for listing.

D. The valuation of securities for estate tax purposes and estate tax planning will be easier: While public listing improves transparency, estate tax considerations are not a primary driver of listing decisions.

Rights are short-term privileges offered to shareholders, allowing them to purchase additional shares at a discounted price before a specified expiration date. Due to their short lifespan, rights typically have limited time value, which decreases as the expiration date approaches.

Option A:Shares trade ex-rights after the record date.

Option B:The subscription price is set below the market price, not equal to it.

Option D:Market values fluctuate based on trading activity and are not constant.

Futures contracts are standardized agreements to buy or sell an asset at a predetermined price on a future date. They are unique because they can be traded on regulated exchanges, such as the Chicago Mercantile Exchange (CME), or over-the-counter (OTC), where counterparties negotiate terms directly.

This dual trading mechanism ensures flexibility and accessibility for market participants, differentiating futures from other derivatives like forwards, which are typically OTC-only.

Study Document References:

Volume 1, Chapter 10:Derivatives and Features of Futures, including how they are traded​​.