CSC1 CSI Canadian Securities Course Exam 1 Free Practice Exam Questions (2025 Updated)

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​​.

A key characteristic ofprovincial savings bondsis that they can only be purchased by residents of the issuing province. This restriction differentiates them from other provincial bonds, which may be available to investors nationwide or internationally.

Other options:

Backed by provincial assets pledged as security: All provincial bonds are backed by the credit of the issuing government, not specifically by pledged assets.

Purchased at any time of the year: Provincial savings bonds are available only during specific sales campaigns.

Do not have redemption rules: Savings bonds often have specific redemption rules, unlike this statement.

References:

Volume 1, Chapter 6:Fixed-Income Securities, section on "Provincial and Municipal Bonds" explains the restrictions and features of provincial savings bonds​.

Provincial savings bonds are a suitable option for an investor seeking a guaranteed return over a fixed period, such as seven years. These bonds are backed by the credit of the issuing provincial government and provide a stable and secure investment, ensuring predictable returns. They are often issued during specific sales campaigns and offer safety comparable to federal bonds but tailored to provincial residents.

Other options:

Preferred shares: Provide fixed dividends but do not guarantee returns.

Common shares: Subject to market risk and do not offer guaranteed returns.

Exchange-traded funds (ETFs): Can track bonds or equities but are subject to market fluctuations and do not guarantee returns.

References:

Volume 1, Chapter 6:Fixed-Income Securities, section on "Provincial and Municipal Bonds" explains the features and security of provincial savings bonds​.

To calculate the break-even price for the put options:

The strike price of the put is $55.

The cost per put option is $2.

For the investor to break even, the stock must fall below the strike price by at least the cost of the option.

Break-even price = Strike price - Cost of the option= $55 - $2 =$53

If ABT Ltd. trades at $53, the investor can sell the stock at $55 using the put and recover the $2 premium paid.

References:

Volume 1, Chapter 10:Derivatives, section on "Options Basics" explains the calculation of break-even prices for options​.

TheMontreal Exchange (MX)is the sole Canadian exchange that lists and trades all financial and equity futures and options. It is a derivatives exchange specializing in these products and is part of the TMX Group.

A. ICE NGX Canada: This platform focuses on energy products like natural gas and electricity, not equity futures or options.

B. Canadian Securities Exchange: This exchange supports small-cap stocks but does not deal with derivatives.

D. Toronto Stock Exchange: This exchange lists equities and some other securities but does not specialize in trading futures or options.

Dividends are taxed at a preferential rate in Canada due to thedividend tax credit, which reduces the effective tax rate on dividend income. This is intended to prevent double taxation because corporations have already paid taxes on their profits before distributing dividends to shareholders.

B. Dividends from preferred shares are ineligible for the dividend tax credit: This is incorrect; dividends from both common and preferred shares are eligible for the dividend tax credit.

C. Stock dividends are treated differently than regular cash dividends for tax purposes: Stock dividends are generally taxed similarly to cash dividends.

D. Reinvested dividends are non-taxable to the shareholders: Reinvested dividends are taxable in the year they are earned, even if reinvested.

The ranking of securities in terms of security is determined by the collateral backing each type of instrument and the priority of claims in the event of default. The correct order is as follows:

Equipment Trust Certificates: These are backed by specific physical assets, such as equipment or machinery. The certificate holders have a direct claim on these assets, making them the most secure.

First Mortgage Bonds: These are secured by the corporation's real estate assets. They represent a claim on the property, ensuring a high level of security, but less secure than equipment trust certificates as real estate may fluctuate in value or face delays in liquidation.

Commercial Paper: This is unsecured short-term debt issued by corporations. As it lacks collateral, it is the least secure of the three securities. Investors rely on the issuing corporation's creditworthiness and financial stability.

The distinction in security levels reflects the degree of collateralization and claim priority, ensuring investors are compensated for the relative risk levels​​.

Aninvestment bankerin a sell-side firm is responsible for structuring new debt issues and bringing them to the primary market. This involves determining the appropriate structure for the debt offering, pricing it based on market conditions, and marketing it to potential investors. Investment bankers play a key role in the capital-raising process for issuers.

References:

Volume 1, Chapter 1:The Canadian Securities Industry, section on "The Role of Investment Dealers," outlines the roles of investment bankers in the primary markets, including structuring and underwriting securities​.

Government securities are awarded at auction using both competitive and non-competitive bidding. In a non-competitive bid, the participants (such as smaller investors or institutions) agree to accept the average yield determined by the competitive bidding process. This mechanism ensures equitable access to government securities without the need to compete directly on yield, promoting broad participation in the market​​.

A stock split is used as a corporate strategy to decrease the price of individual shares by increasing the number of shares outstanding. This makes the shares more affordable for a broader range of investors, improving liquidity and potentially enhancing marketability.

For example, in a 2-for-1 stock split, shareholders receive two shares for every one share they own, and the share price is halved.

Study Document References:

Volume 1, Chapter 8:Stock Splits and Corporate Strategy, including the rationale for adjusting share prices​​.

A foreign pay bond is a type of bond that allows the investor to choose the currency in which to receive interest payments, usually between the currency of the issuer's country and a foreign currency. This feature provides flexibility for investors who may want to manage currency risk or take advantage of fluctuations in exchange rates.

Review of Other Options:

A. Eurobonds:

Eurobonds are international bonds issued in a currency other than the currency of the country where they are issued. However, they do not provide the investor with a choice of interest payments in different currencies.

C. Subordinated Debentures:

These are unsecured bonds that rank below other debts in terms of repayment priority in case of liquidation. They do not involve currency options for interest payments.

D. Floating-Rate Securities:

These bonds have variable interest rates that adjust periodically based on a benchmark interest rate, such as LIBOR or prime rate, but they do not allow investors to choose the currency of interest payments.

Why B is Correct:

Foreign pay bonds are explicitly designed to offer investors a choice of interest payments in two currencies, making them unique among fixed-income securities. This feature provides added flexibility for investors dealing with foreign exchange considerations.

References:

Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities – Features and Types. Detailed explanation of foreign pay bonds and their distinguishing features​.

Discussion of bond types and their characteristics, including Eurobonds and floating-rate securities, in Chapter 6​.

TheKnow Your Client (KYC) rulerequires registrants to gather detailed personal and financial information from clients before providing investment advice or making recommendations. This ensures that investment recommendations align with the client’s financial goals, risk tolerance, and circumstances.

This obligation is critical for ensuring suitability in investment products and maintaining regulatory compliance.

Suitability rule (A)refers to matching investments to a client's needs but comes after gathering KYC information.

Gatekeeper obligations (C)focus on preventing illegal activities like money laundering.

Fiduciary duty (D)applies to acting in the best interest of the client but is broader in scope.

References:Volume 1, Chapter 3 ("Know Your Client Rule")​.

Self-directed brokers are the most cost-effective option for investing in derivatives. They provide a platform for investors to execute trades independently without the additional costs associated with advisory services offered by full-service brokers. Investors are charged lower transaction fees, making this option ideal for cost-conscious individuals who are comfortable making their own investment decisions.

B. A full-service broker: Full-service brokers charge higher fees because they provide additional advisory and management services.

C. An integrated firm: Integrated firms offer both retail and institutional services, which generally come with higher fees compared to self-directed platforms.

D. An investment boutique: Boutique firms typically specialize in niche markets and may have higher service costs, which are not ideal for cost-effective derivatives trading.

In Canada, retail stock and bond transactions are settled through aclearing corporation, such as the Canadian Depository for Securities (CDS). The clearing corporation ensures that transactions are accurately settled according to the dealers' records.

Exchanges facilitate the trading process but are not directly responsible for settling transactions (A, D).

The clearing corporation settles transactions based on dealer records, not exchange records (B).

References:Volume 1, Chapter 7 ("Clearing and Settlement")​.

The federal government borrows from the capital markets to cover budget deficits, which occur when government spending exceeds its revenues. Borrowing is done through the issuance of fixed-income securities such as Treasury bills, bonds, and notes. This process enables the government to fund public services, programs, and infrastructure projects without immediately raising taxes.

A. To raise capital for streets, sewers, and waterworks: While such projects are funded by borrowing, they are typically under the purview of municipal or provincial governments rather than the federal government.

B. To support the capital markets: This is an indirect result but not the primary reason for borrowing.

D. To support the expansion of corporations: Corporate expansion is financed through private or corporate capital markets, not federal borrowing.

The shares held by institutional investors, along with other shares available for trading by the public, are referred to as thepublic float shares. These are the issued shares of a company that are actively traded in the market, excluding restricted shares held by insiders or strategic investors.

Other options:

Issued shares: Includes all shares a company has issued, including restricted shares.

Outstanding shares: Includes all shares held by all shareholders, including restricted shares and shares not available for trading.

Market capitalization shares: Not a term used to describe shares; market capitalization is a measure of a company's total value based on its stock price and outstanding shares.

References:

Volume 1, Chapter 8:Equity Securities, section on "Public Float and Market Capitalization" explains the concept of public float shares​.