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Title: Started: Submitted: Time spent: Practice Exam 1 - Volume 1 July 17, 2013 11:54 AM July 17, 2013 12:24 PM 00:29:56 Total score adjusted by 0.0 Maximum possible score: 100

Total score: 97/100 = 97% Done 1.

What is a feature of accrued interest? Student Value Response A. Calculated using the current yield for a bond. B. Included in the market price of a bond. C. Paid by the seller to the buyer of a bond. D. Paid by 100% the buyer to the seller of a bond. General Accrued interest is the amount of interest built up during the previous holding Feedback: period. It is paid at the time of purchase from the buyer to the previous holder to ensure the transaction between buyer and seller is equitable. Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading. Score: 2. Regrowth Ltd. 10-year bonds, due April 15, 20XX, include the following provision: "Regrowth must redeem a minimum of 5% of the issue on April 15 each year." Which feature does the
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Regrowth issue include? Student Response A. Callable. B. Purchase fund. C. Retractable. D. Sinking fund. 100% Value Correct Answer Feedback

General Some issuers must repay portions of their bonds for redemption before maturity, Feedback: 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. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 3. Which statement best describes the Standard and Poor's (S&P) 500 Composite Index? Student Response Value Correct Answer Feedback 1/1

A. A 100% capitalizationweighted index in which larger capitalization stock have a greater effect on the index value. B. The index level is calculated by adding the prices of 500 stocks and dividing by a specially calculated divisor adjusting for splits and
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dividends. C. A marketweighted index of stocks that trade mostly over-thecounter. D. A priceweighted index in which higher priced stocks may distort the overall performance of the index. General Since the S&P 500 is weighted by market capitalization, more heavily weighted stocks Feedback: have a greater effect on the value of the index. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 4. What is the term for an investment order placed on behalf of the account of a partner or director of a dealer member? Student Value Response A. Exempt order. B. N-E order. C. Preferential order. D. Pro order. 100% Correct Answer Feedback 1/1

General Pro orders are orders for the accounts of partners, directors, officers, shareholders, Feedback: IAs 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 clients order if both orders compete at the same price for the same security. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 5. An investor owns 5,000 shares in a company at a current market price of $8 per share. The
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company subsequently declared a 2-for-1 stock split. Calculate the dollar value of the investors shares after the split. Student Value Response A. $10,000 B. $40,000 C. $80,000 D. $160,000 General Current market price= 5000 X 8= $ 40,000 Feedback: Number of shares after a 2-for-1 stock split = 5000 X 2 = 10000 Price per share after 2-for-1 stock split = $82 = $4 Total dollar value of the investor`s shares after the split = 10,000 X $4 = $40,000. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 6. Who is responsible for providing liquidity on over-the-counter markets (OTC) by posting bid and ask quotations? Student Value Response A. Investment dealers. B. Market makers. C. Spread traders. D. Transfer agents. General In the OTC market, individual investors orders are not entered into the market or Feedback: 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 the inventory 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 the market makers to quote bid and ask prices provides liquidity to the system. Text reference: Chapter 1: The Capital Market. Score: 7. What is one stated purpose of the Statement of Changes in Equity? 1/1 100% Correct Answer Feedback 1/1 100% Correct Answer Feedback

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A. To be the link 100% between the statement of comprehensive income and the statement of financial position. B. To record any new issues of the company's shares. C. To report the settlement of debt during the current year. D. To report interest paid during the period. General The statement of changes in equity provides a link between the statement of Feedback: comprehensive income and the statement of financial position. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 8. Leila sold short 1,000 common shares of Puddle at $19 per share, then immediately placed an order to protect this position. Select the type of order Leila placed. Student Value Response A. Limit order. B. Market order. C. Stop buy order. D. Stop loss order. General Stop Buy Order: An order to buy a security only after it has reached a certain price. Feedback: This type of order may be used to protect a short position or to ensure that a stock is purchased while its price is rising. It is the opposite of a stop loss order. Text reference: Chapter 9: Equity Securities: Equity Transactions.
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9. If a 3-month Government of Canada Treasury bill is purchased today, when will the transaction settle? Student Response A. First clearing day after the transaction. B. Second clearing day after the transaction. C. Third clearing day after the transaction. D. On the 100% transaction date. General Trading in Government of Canada Treasury bills is settled on the same day as the Feedback: transaction. Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading. Score: 10. 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? Student Value Response A. Deferred shares. B. Escrowed shares. C. Junior shares. D. Trusteed shares.
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General Escrowed shares serve as payment for properties, goods or services. Escrowed Feedback: shares are shares held by an independent trustee in trust for its owner that cannot be sold or transferred unless special approval is given. Text reference: Chapter 11: Financing and Listing Securities. Score: 1/1

11. When trading derivatives, what is an appropriate basis for the underlying interest rate in an OTC interest rate forward contract? Student Value Response A. The borrowing rate of the seller. B. The borrowing rate of the buyer. C. The yield on a major equity index. D. The yield on a Treasury bill. 100% Correct Answer Feedback

General In the OTC market, interest rate derivatives are generally based on well-defined and Feedback: well known floating interest rates, which are not easily manipulated by market participants. Examples of such underlying rates assets include LIBOR or the London Interbank Offer Rate (the interest earned on Eurodollar deposits in London) and the yields on Treasury bills and Treasury bonds. Because these OTC derivatives are based on an interest rate rather than an actual security, the contracts are settled in cash. Text reference: Chapter 10: Derivatives. Score: 12. Life insurance companies have historically been active in which market(s)? i. Derivatives ii. Mortgages 1/1

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iii. Stocks iv. Commodities v. Long-term bonds

Student Value Response A. ii, and v only. B. i and iii only. C. ii, iii and v only. D. i, iii, and iv only. 100%

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General Since safety of principal is of prime importance to life insurance companies, they tend Feedback: to invest primarily in both mortgage and long-term bond markets. Text reference: Chapter 2: The Canadian Securities Industry. Score: 13. The current quote on QRS common shares is $45 bid, $45.50 offered. An investor placed an order to buy 500 shares of QRS at the best available price. What is this type of order? Student Value Response A. Good till cancelled order. B. Limit order. C. Market order. D. Standard order. General Market Order: An order to buy or sell a specified number of securities at the Feedback: prevailing market price. All orders not bearing a specific price are considered market orders, which could mean paying the offer (when buying) or accepting the bid (when selling). In any case, the trader will try to obtain a lower offer or a higher bid than the prevailing level. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 1/1 100% Correct Answer Feedback 1/1

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14. The following quote for a bond appears in the newspaper:

Calculate how much a client will pay if she wants to purchase a $20,000 denomination of this bond. (Ignore any accrued interest.) Student Value Response A. $18,920.00 B. $19,120.46 C. $20,860.00 D. $20,920.00 100% General The bond is purchased at the ask or 104.60. $20,000 x 104.6%= $20,920 Text Feedback: reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 15. What kind of inflation results from a positive output gap? Student Response A. Cost-push inflation. B. Deflation. C. Demandpull inflation. D. Disinflation. General In general, a positive output gap occurs as the economy moves through an expansion Feedback: towards the peak. Output continues to expand, consumer income is rising, and this leads to strong consumer demand for goods and services. However, this creates a situation whereby if companies can continue to operate well above normal capacity, they can raise prices in response to this strong demand. In this way, higher and continued consumer demand pushes inflation higher. This state of affairs is called demand-pull inflation. Text reference: Chapter 4: Economic Principles. Score: 16. What is a primary function of a financial intermediary? Student Value Correct Answer Feedback
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Response A. Arbitrate disputes between customers and financial institutions. B. Assist in the 100% transfer of capital from savers to users. C. Ensure fairness of securities pricing. D. Regulate the settlement dates on securities transactions. General Intermediaries are a key component of the financial system. The term intermediary Feedback: is used to describe any organization that facilitates the trading or movement of the financial instruments that transfer capital between suppliers and users. Text reference: Chapter 2: The Canadian Securities Industry. Score: 17. What type of order is entered when the client is willing to accept the trade only if the entire amount can be purchased at the same time? Student Value Response A. All or none 100% order. B. Any part order. C. Good till cancelled order. D. Limit order. General An order whereby the entire amount of stock must be bought or sold or no part of the Feedback: order will be executed is known as an All or None (AON) order. Text reference: Chapter 9: Equity Securities: Equity Transactions.
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18. A bond issued by a Canadian corporation and denominated in Pounds Sterling is traded on the international bond market. What type of bond is this? Student Value Response A. Domestic bond. B. Eurobond. C. Foreign bond. D. Global bond. General Eurobonds are issued in a foreign market and are denominated in a currency other Feedback: than that of the market where the bonds are issued. They are issued in the Eurobond market or the international bond market and can be issued in any number of different currencies. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 19. What effect does an improvement in worker productivity have on the level of gross domestic product (GDP)? Student Value Response A. Constant during periods of population growth. B. Decrease. C. Increase. D. Variable. General Growth in GDP results from a variety of factors; among the more important is, Feedback: increases in the capital stock. As more workers are provided with additional equipment and as their skills have been improved with better training and education, individual productivity rises and the growth in GDP will increase. Text reference: Chapter 4: Economic Principles. Score: 1/1 100% Correct Answer Feedback 0/1 0% Correct Answer Feedback

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20. Why do provincial securities administrators require underwriters to maintain a record of all persons and companies to whom a preliminary prospectus has been sent? Student Response Value Correct Answer Feedback

A. A new 100% prospectus must be sent to recipients if the original is amended. B. Certificates must be sent to recipients when the issue is approved. C. Information not contained in the prospectus can be added at a later time. D. Securities administrators will know where to send the final prospectus. General The sales staff is allowed to identify the security, its features and price (if Feedback: determined), and is obligated to record names and addresses of individuals and corporations who have requested and received a preliminary prospectus. If any amendments to the preliminary prospectus are to be made, a copy of the amended prospectus must be forwarded to all prospective purchasers that had received the original copy. Text reference: Chapter 11: Financing and Listing Securities. Score: 21. What term refers to a senior security that has the primary entitlement to a company's assets and earnings? Student Response A. First Value 100%
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mortgage bond. B. Subordinated debenture. C. Secondary line of credit. D. Preferred securities. General First mortgage bonds are the senior securities of a company, because they constitute Feedback: a first charge on the companys assets, earnings and undertakings before unsecured current liabilities are paid. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 22. Paul is a general partner in an organization that declared bankruptcy. What liability does Paul have for the organizations outstanding debts? Student Response A. Liability limited to his original investment plus reinvested profits. B. Liability limited to the amount of his original investment. C. Liability proportional to the total investments of all of the partners. D. Personal 100% liability for all debts and obligations of the organization. General The general partners are involved in the day-to-day operations and are personally Value Correct Answer Feedback 1/1

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Feedback: liable for all debts and obligations incurred in the course of business. Text reference: Chapter 11: Financing and Listing Securities. Score: 23. Which section of a companys financial statements includes such information as a description of its fixed assets, the various segments of the companys operations, and whether the company uses derivatives for hedging purposes? Student Response A. Auditors report. B. Notes to financial statements. C. Statement of Cash Flows. D. Supplemental information report. General There is a considerable amount of detailed information which, in the shareholders Feedback: 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 the financial statements. It is essential for an investor to have an understanding of the notes as they provide important details about the companys financial condition. Items in a companys notes include the companys statement of compliance with IFRS, the accounting policies used, descriptions of fixed assets, share capital and long-term debt, and commitments and contingencies. It is also here that a potential investor should look to ascertain whether the company uses derivatives for hedging or other purposes. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 24. What impact does a company face when it increases the amount of financial leverage on its balance sheet? Student Response A. A higher reported level of cash flow used to pay
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dividends. B. A higher 100% reported level of debt. C. A lower reported level of interest expense. D. A lower reported after-tax return on shareholders equity. General If companies believe they can earn a greater return on cash invested in their Feedback: business than it would cost to borrow money, they can increase the return on shareholders equity by borrowing money. This is what is meant by financial leverage. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 25. Ruth is a retired client of yours. She is thinking of investing in a company that she believes will do very well in the future. However, she only needs a small amount of steady income to maintain her lifestyle. What type of the companys securities would you recommend? Student Response A. Floating rate preferred shares B. Participating 100% preferred shares. C. Restricted common shares. D. Subordinated debentures. General Participating preferred shares have certain rights to a share in the earnings of the Feedback: company over and above their specified dividend rate. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 1/1 Value Correct Answer Feedback 1/1

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26. A bond is trading at 96.77. The yield of the bond rises by 1.5%. Ignoring any other considerations, determine the impact this will have on the bond's price. Student Value Response A. Decrease. B. Increase. C. Good value. D. Slight movement, either up or down, depending on market conditions. General The most important bond pricing relationship to understand is the inverse relationship Feedback: 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. Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading. Score: 27. How are stock dividends treated for tax purposes when paid to Canadian resident taxpayers? Student Value Response A. Capital gains in the year the dividend is paid. B. Capital gains when the shares are sold. C. Ordinary income in the year Correct Answer Feedback 1/1 100% Correct Answer Feedback

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the dividend is paid. D. Same as 100% cash dividends in the year the dividend is paid.

General Since stock dividends are treated as regular cash dividends for tax purposes, many Feedback: investors, given the option, elect to receive dividends in cash. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 28. What describes the illegal practice of a broker confirming a stock trade where no actual transaction actually took place? Student Value Response A. Bucketing. 100% B. Front running. C. Material change. D. Window dressing. General Confirming a transaction where no trade has been executed is known as Feedback: bucketing.Text reference: Chapter 3: The Canadian Regulatory Environment. Score: 29. What is one way a bond index is used by an investor? Student Response A. Benchmark the minimum return expected on stocks.
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B. Forecast future bond yields. C. Review the 100% performance of a bond portfolio manager. D. Measure changes in fixedincome risk during various economic cycles. General A bond index is used as a guide to the performance of the overall bond market or a Feedback: segment of that market. Also, it used as performance measurement tool, to assess the performance of bond portfolio managers. Text reference: Chapter 7: FixedIncome Securities: Pricing and Trading. Score: 30. If a bond with a $10,000 face value is purchased at a price of 97, what does this mean for an investor buying the bond? Student Value Response A. The bond 100% will generate a capital gain if held to maturity. B. The bond will mature for less than its face value. C. The bond will produce lower coupon
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income over its term. D. The bond is priced at a premium to its par value. General The bond is currently being offered at a discount to par value. If the bond is Feedback: purchased at a discount and held to maturity the investment generates a capital gain for the holder. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 31. An investor bought 4 LID March 40 call options for a premium of $4 when LID stock traded at $38 a share. The investor subsequently sold his 4 calls for $4.60 when LID traded at $40 a share. Calculate the outcome on the option transaction (ignore any other costs or commissions). Student Value Response A. $240 profit. B. $460 loss. C. $1,040 loss. D. $800 profit. General Cost of purchasing 4 LID call option = 4 X 100 X $4 = $1600 Feedback: Proceeds from selling 4 LID call option = 4 X 100 X $4.6 = $1840 1840 -1600 = $240 profit. Text reference: Chapter 10: Derivatives. Score: 32. On January 3, an investor purchased a Nova Scotia Power Inc. 5.75% bond due March 15, 2025. When will the investor receive coupon payments from the bond? Student Value Response A. On January 3rd each year. Correct Answer Feedback 1/1 100% Correct Answer Feedback 1/1

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B. On January 3rd and July 3rd each year.

C. On March 100% 15th and September 15th each year. D. On September 15th each year. General Most bonds pay the coupon twice a year, or semi-annually. Text reference: Feedback: Chapter 7: Fixed-Income Securities: Pricing and Trading. Score: 33. Which financial statement details how a companys financial position has changed from one period to the next? Student Response A. Statement of Cash Flows. B. Statement of Changes in Equity. C. Statement of Comprehensive Income. D. Statement of Financial Position. 0% Value Correct Answer Feedback 1/1

General While the statement of financial position shows a companys financial position at a Feedback: specific point in time and the statement of comprehensive income summarizes the companys operating activities for the year, neither statement shows how the companys 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. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 0/1

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34. How are reinvested dividends taxed? Student Value Response A. As a capital gain when the shares are sold. B. As a capital gain when the shares are received. C. As an ordinary cash dividend when received. D. As a 0% regular cash dividend when the shares are sold. General Reinvested dividends are taxable to the shareholder as ordinary cash dividends even Feedback: though the dividends are not received as cash. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 35. In what circumstances might the Bank of Canada implement a special purchase and resale agreement (SPRA)? Student Response A. Overnight rate is above the target of the operating Value 100% Correct Answer Feedback 0/1 Correct Answer Feedback

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band. B. Overnight rate is near the bottom of the monetary conditions index. C. Prime rate is above the target of the Treasury bill rate. D. Spread between government short-term and longterm bonds narrows. General Special Purchase and Resale Agreements (commonly referred to as SPRAs or Feedback: Specials) are used by the Bank of Canada to relieve undesired upward pressure on overnight financing rates. If overnight money is trading above the target of the operating band, the Bank may believe that the higher rate will dampen economic activity. To combat this, the Bank intervenes and offers to lend at the upper limit of the operating band. Text reference: Chapter 5: Economic Policy. Score: 36. An investor wrote 3 DEF August 35 covered calls at $3.25. DEF shares subsequently rise to $40, and the writer is assigned. Calculate the amount the writer receives in total as a result of this investment strategy (ignore any other costs or considerations). Student Value Response A. $9,525 B. $11,475 C. $12,000 D. $12,975 General 3 X 100 X $ 3.25 = $975 Feedback: 300 x $35 = $10 500 The amount the writer receives = 975 + 10 500 = $11,475 Text reference: Chapter 10: Derivatives. Score: 1/1 100% Correct Answer Feedback 1/1

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37. What type of market do most bonds and debentures in Canada trade? Student Value Response A. Auction markets. B. Dealer markets. C. Exchange markets. D. Primary markets. 100% Correct Answer Feedback

General Almost all bonds and debentures are sold through dealer markets. Text reference: Feedback: Chapter 1: The Capital Market. Score: 38. What is one of the risks when using an OTC derivative that is not a risk with exchanged-traded derivatives? Student Response A. Contract too standardized. B. Default risk. C. Increased volatility. D. Uncertain delivery dates. General A downside to the private nature of OTC derivatives is that default or credit risk is a Feedback: major concern. Default risk is the risk that one of the parties to a derivative contract cannot meet its obligations to the other party. Text reference: Chapter 10: Derivatives. Score: 39. The Philips curve is best characterized by which of the following statements?
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Student Response A. Inflation and interest rates move in the opposite direction. B. Inflation and interest rates move in the same direction.

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C. Inflation and 100% unemployment levels move in the opposite direction. D. Inflation and unemployment levels move in the same direction. General The potential cost of disinflation is captured by the Phillips curve, which says that Feedback: when unemployment is low, inflation tends to be high, and when unemployment is high, inflation tends to be low. Text reference: Chapter 4: Economic Principles. Score: 40. Which method of depreciations deducts a larger dollar amount in the first few years than the last few years? Student Value Response A. Declining- 100% balance method. B. Equal amounts method. C. Increasing amount method. D. Straightline method. General There are several methods by which these amounts can be allocated to each
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Feedback: accounting period. The declining-balance method applies a fixed percentage, 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. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 1/1

41. What type of corporate bond is secured by a pledge of securities rather than a pledge of real property? Student Response A. Collateral trust bond. B. Convertible bond. C. Mortgage bond. D. Participating bond. General A collateral trust bond is one that is secured, not by a pledge of real property, as in a Feedback: mortgage bond, but by a pledge of securities, or collateral. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 42. Which yield calculation looks only at recent market price and cash flows, but not the amount originally invested? Student Value Response A. Current yield. B. Fair market yield of a bond. C. Treasury bill yield. D. Yield to maturity.
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General Current yield looks only at cash flows and the current market price of the investment, Feedback: not at the amount that was originally invested. Text reference: Chapter 7: FixedIncome Securities: Pricing and Trading. Score: 43. Select the correct statements about margin accounts. I. Margin calls must be paid without delay. II. Margin increases market risk. III. The dealer can only sell securities from the account with the clients consent. IV. Loan interest must be repaid by the client to the dealer. 1/1

Student Value Response A. I, II. B. I, II and IV. C. I, III. D. I, II, III and IV. 100%

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General All the statements are correct with the exception of statement III. In a margin Feedback: account, the dealer can sell securities from the account to secure its loan without the clients consent. If the client fails to meet a margin call, the dealer can sell the clients securities without notice. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 44. Which statement best describes structural unemployment? Student Response Value Correct Answer Feedback 1/1

A. The share of 100% unemployment that exists because workers lack the necessary skills. B. The share of
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unemployment that occurs as the economy moves through the business cycle. C. The share of unemployment that results from productivity increases. D. The share of unemployment that results from people entering and leaving the workforce. General Structural unemployment occurs when workers are unable to find work or fill Feedback: 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.Text reference: Chapter 4: Economic Principles. Score: 45. Which economic theory states that active government policy can play an important role in increasing economic output? Student Response A. Keynesian theory. B. Monetarist theory. C. Rational Expectations theory. D. Supply-side theory. General Keynesian economics advocates the use of direct government intervention as a Feedback: means of achieving economic growth and stability. Text reference: Chapter 5: Economic Policy. Score: 1/1 Value 100% Correct Answer Feedback 1/1

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46. Ignoring other considerations, what effect does the current account balance generally have on a nations exchange rate? Student Value Response A. A current account deficit puts upward pressure on the exchange rate. B. A current account surplus puts upward pressure on the exchange rate. C. A current account surplus puts downward pressure on the exchange rate. D. The current account balance does not affect the exchange rate. General A country with a current account deficit is spending more than it is earning and must Feedback: borrow funds to make up the difference. In effect, this means the deficitcountry is constantly demanding more foreign currency than it receives through its exports, and supplying more domestic currency than the rest of the world demands for its products. This excess demand for foreign currency puts downward pressure on the domestic exchange rate. This occurs until domestic exports or assets are cheap enough to attract foreigners and imports, or foreign assets are too expensive to
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attract domestic interests. Text reference: Chapter 4: Economic Principles. Score: 47. Recommend why an investor would write an equity put option. Student Value Response A. To earn income. B. To have the right to sell the underlying stock. C. To limit his losses from a decline in the underlying. D. To profit from leverage in case of price increase of the underlying. General Investors write put options primarily for the income they provide. The income, in the Feedback: form of the premium, is the writers to keep no matter what happens to the price of the underlying asset or what the buyer eventually does. Text reference: Chapter 10: Derivatives. Score: 48. Which economic theory states that non-interventionist government policy will help the economy achieve a stable path of growth and prosperity? Student Response A. Fiscal theory. B. Keynesian theory.
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C. Monetarist theory. D. Rational Expectations theory.

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General Monetarist theory suggests that the economy is inherently stable, with its own self Feedback: adjusting mechanism that automatically moves the economy to a stable path of growth. Monetarists argue against the use of active monetary or fiscal policy and believe the central bank should simply expand the money supply at a rate equal to the economys long-term growth rate. Text reference: Chapter 5: Economic Policy. Score: 49. Select the indicator that suggests the economy is approaching the peak phase of the business cycle? Student Value Response A. Inflation is 100% rising. B. Inventories are depleted. C. Interest rates are dropping. D. Stock prices are increasing. General The top of the business cycle is called a peak. The peak is characterised by many Feedback: activities such as labour and product shortages that cause wages to increase and inflation to rise. Inflation also rises because during the expansion phase into the peak, the demand for goods begins to outstrip supply and prices on products throughout the economy begin to rise. Text reference: Chapter 4: Economic Principles. Score: 50. Select the trading system that allows a brokerage firm to bypass the exchanges and act as an agent bringing buyers and sellers together. Student Value Response A. Alternative 100%
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Trading Systems. B. Canadian Unlisted Board Inc. C. CanPx. D. Quotation and Trade Reporting Systems. General Alternative trading systems (ATSs) are privately owned computerized trading Feedback: facilities that match buy and sell orders for securities traded outside of recognized exchanges. ATSs can be owned by individual brokerage firms or by groups of brokerage firms. These systems compete with the exchanges because a brokerage firm operating an ATS can match orders directly from its own inventory, or act as an agent in bringing buyers and sellers together, thus bypassing the stock exchange. Text reference: Chapter 1: The Capital Market. Score: 51. What term refers to a bond that is secured by real property, such as office buildings? Student Value Response A. Collateral trust bond. B. Equipment trust certificate. C. Mortgage bond. D. Purchase fund bond. General A mortgage is a legal document containing an agreement to pledge land, buildings or Feedback: 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. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 52. If an individual has 2 personal accounts and 1 account in trust for a minor child, how are these accounts evaluated by the Canadian Investor Protection Fund (CIPF)? 1/1 100% Correct Answer Feedback 1/1

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A. All three accounts are combined. B. All three accounts are evaluated separately. C. Only the two personal accounts are evaluated for coverage, and the trust is subject to separate legislation. D. The two 100% personal accounts are combined, and the trust account is evaluated separately. General Accounts of a customer such as cash, margin, short sale, options, futures and foreign Feedback: 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. Two trust accounts held for the benefit of different beneficiaries would not be combined into a single separate account. Text reference: Chapter 3: The Canadian Regulatory Environment. Score: 53. The present value of a bond's income stream is $28.50. The present value of its principal is $95.
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Ignoring any other considerations, calculate the most an investor should pay for the bond. Student Value Response A. $28.50 B. $95.00 C. $100.00 D. $123.50 100% Correct Answer Feedback

General 95 + 28.5 = $123.50 Text reference: Chapter 7: Fixed-Income Securities: Feedback: Pricing and Trading. Score: 1/1

54. Where do dividend payments made to company shareholders appear in the Statement of Cash Flows? Student Value Response A. Under capital spending activities. B. Under earnings activities. C. Under financing activities. D. Under investing activities. General Financing activities involve transactions used to finance the company and include the Feedback: issue of new shares, new debt or the payment of dividends. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 55. GHI Co. declared a reverse stock split. Determine the impact this will have on its cash position. Student Value Response A. Decrease
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in cash position. B. Decrease in cash position but only after the reverse split is finalized. C. No change 100% in cash position. D. Increase in cash position. General If a reverse split of one new share for ten old were implemented, a shareholder Feedback: owning 100 shares of stock would own only 10 new shares after the reverse split. If the shares were selling at $0.25 before the reverse split, the new shares would probably trade near $2.50 per share. The total dollar value of the holdings would not be affected: $0.25 ! 100 shares pre consolidation = $2.50 ! 10 shares after the consolidation. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 56. Maurice is considering the purchase of a Nova Scotia Power Inc. 5.75% bond due March 15, 2025. If Maurice purchases this bond, list the 3 variables he should use to calculate how much accrued interest is payable. Student Value Response A. The 100% principal amount, the coupon rate, and the time period between coupon payment and settlement. B. The principal amount,
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the yield to call, and the term to maturity. C. The purchase price, the current yield, and the term to maturity. D. The purchase price, the yield to maturity, and the time period between coupon payment and settlement. General Feedback: The amount of accrued interest is found by using three numbers: The principal amount The coupon rate The time period from the day after the previous interest payment date up to and including the day of settlement. Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading. Score: 57. What is a characteristic of a Government of Canada marketable bond? Student Value Response A. Cashable at full par value. B. Price does not react to interest rate changes.
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C. Maximum purchase amount per individual. D. Tradable 100% in the secondary market. General The Government of Canada issues marketable bonds in its own name. These issues Feedback: are called marketable bonds because, as well as having a specific maturity date and a specified interest rate, they are transferable, which means that they may be traded in the market. Text reference: Chapter 6: Fixed-Income Securities: Features and Types. Score: 58. An investor placed a buy order for 10,000 shares of BMX 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 is this? Student Value Response A. All or none order. B. Any part order. C. Good through order. D. Good till cancelled order. General Good Through Order: An order to buy or sell that is good for a specified number of Feedback: 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. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 59. In what 3 ways does the exchange-traded derivatives market differ from the over-the-counter (OTC) derivatives market? Student Response Value Correct Answer Feedback 1/1 100% Correct Answer Feedback 1/1

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A. Clearinghouse 100% 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-tomarket of daily profits and losses. General Clearinghouses, which are set up by exchanges to ensure that markets operate Feedback: efficiently, guarantee the financial obligations of every party and contract. The clearing corporation becomes, in effect, 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. Text reference: Chapter 10: Derivatives. Score: 60. Marjorie wants to purchase preferred shares in a non-registered account and is seeking an investment that has the potential of deferring tax. If Marjorie does not need a regular stream of income, recommend her best investment option. Student Response A. Cumulative preferred shares. B. Deferred preferred shares. C. Participating preferred shares.
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D. Voting preferred shares. General Deferred preferred shares allow investors to defer taxes paid on income earned until Feedback: 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. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 61. What is one benefit of preferred shares that is not provided by common shares? 1/1

Student Response A. Greater potential for capital appreciation. B. Preferential dividend payments. C. Prior claim on company assets before bondholders. D. Voting rights.

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General Preferred shareholders are usually entitled to a fixed dividend payment subject to the Feedback: 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 will increase in price, much like a bond; but 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. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 62. If the Bank of Canada's operating band is 4.5% to 5.0%, and the overnight rate is 5.2%, recommend what the Bank of Canada should do. Student Value Correct Answer Feedback
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Response A. Change the target range to 4.8% to 5.3%. B. Raise the bank rate to 5.3%. C. Offer to borrow money from financial institutions at 4.5% overnight. D. Offer to 100% lend money to financial institutions at 5.0% overnight. General The Target for the Overnight Rate is the upper limit of the operating band- 5% in this Feedback: example. Special Purchase and Resale Agreements (commonly referred to as SPRAs or Specials) are used by the Bank of Canada to relieve undesired upward pressure on overnight financing rates. If overnight money is trading above the target of the operating band, the Bank may believe that the higher rate will dampen economic activity. To combat this, the Bank intervenes and offers to lend at the upper limit of the operating band. Text reference: Chapter 5: Economic Policy. Score: 63. What is the term for an investment order in which the client will accept all stock in odd, broken or board lots up to the full amount of the order? Student Value Response A. Any part order. B. All or none order. C. At the market order.
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D. Open order. General Any Part Order: The exact opposite of an all or none order in which the client will Feedback: accept all stock in odd lot or standard trading units up to the full amount of the order. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 1/1

64. Which of the following statements is true regarding short selling? Student Value Response A. The short seller believes the shares will increase in price. B. The short seller cannot be forced to close out the position. C. The short 100% seller may have difficulty borrowing the shares. D. The short seller must close out the position before the end of the month. General There can be difficulties in borrowing a sufficient quantity of the security sold short to Feedback: cover the short sale. If the short sellers dealer finds at some point that there is no replacement stock it can borrow to maintain or carry a clients 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 prevailing market price of the shorted security. The short seller
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believes the price of the shares will decline. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 65. In which of the following activities does the Investment Industry Association (IIAC) of Canada participate? Student Response A. It monitors the financial compliance of its members. B. It monitors trading activities of its members. C. It oversees the education of the employees of members. D. It 100% represents the views of its members to the government. General The IIAC is a member-based professional association that represents the interests of Feedback: market participants. The membership base consists of a broad cross-section of the securities industry, including full service securities firms, institutional and retail boutique firms, and discount brokerages. The IIAC provides support and services that contribute to the success of their members. It also represents the investment industrys views and interests to federal and provincial governments and their agencies, and to other SROs in such areas as securities and capital markets legislation and regulation and fiscal and monetary policy. Text reference: Chapter 3: The Canadian Regulatory Environment. Score: 66. What is the best environment to own variable-rate preferred shares? 1/1 Value Correct Answer Feedback 1/1

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Student Value Response A. When interest rates are declining. B. When 100% interest rates are increasing. C. When stock prices are climbing rapidly. D. When stock markets are very volatile.

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General From the standpoint of the purchaser, variable rate preferred shares provide higher Feedback: income if interest rates rise, but lower income if interest rates fall. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 67. Select the correct description about a stock that trades on the over-the-counter (OTC) market. Student Response A. Considered a speculative security. B. Highly visible to all participants. C. Likely experienced a halt in trading. D. Traded by an auction process. General Many junior issues trade OTC, but so to do the shares of a few conservative industrial
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Feedback: companies whose boards of directors have for one reason or another decided not to seek stock exchange listing for one or more issues of their equities. The unlisted market does not set listing requirements for the stocks traded on its system (hence the term unlisted market) nor does it attempt to regulate the companies. Many of the stocks sold on the unlisted market are more speculative, and in most cases offer lower liquidity, than listed securities. Text reference: Chapter 1: The Capital Market. Score: 1/1

68. Select the situation that might cause the retained earnings of a company to increase in future years, all else being equal. Student Response A. New shares are issued. B. The board 100% of directors cuts the dividend rate. C. The company authorizes a 2-for-1 share split on all outstanding common shares. D. The price of the common shares is expected to rise over the next several years. General Retained earnings are profits earned over the years that have not been paid out to Feedback: shareholders as dividends. These retained profits accrue to the shareholders, but the directors have decided for the present time to reinvest them in the business. Retained earnings provides a record of the total comprehensive income kept in the business year after year. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 1/1
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69. Calculate the yield on a 182-day Government of Canada Treasury bill purchased at a price of 97.50. Student Value Response A. 4.95% B. 5.01% C. 5.07% D. 5.14% 100% Correct Answer Feedback

General (100-97.5)/97.5 x 365/182 x 100= 5.14% Text reference: Chapter 7: FixedFeedback: Income Securities: Pricing and Trading. Score: 1/1

70. What is an example of a business cycle leading indicator? Student Response A. Gross Domestic Product. B. Housing starts. 100% C. Private sector plant and equipment spending. D. Unemployment rate. General Housing starts are a leading indicator because it signals confidence in employment, Feedback: income levels and the ability of consumers to spend on such items as appliances, furniture, and other household big ticket items and these purchases have a broader positive impact over the entire economy. The unemployment rate is a lagging indicator, GDP is a coincident indicator, and private sector spending is a coincident indicator. Text reference: Chapter 4: Economic Principles. Score: 71. How could Delia use options to purchase stock at a price lower than the current market price? 1/1 Value Correct Answer Feedback

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Student Value Response A. Exercise an in-themoney put. B. Exercise an out-ofthe money call. C. Write a cashsecured put. D. Write a covered call. 100%

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General Some investors write cash-secured puts as a way to buy the stock at an effective Feedback: price that is lower than the current market price. The effective price is equal to the strike price minus the premium received. Text reference: Chapter 10: Derivatives. Score: 72. What decision is at the sole discretion of the board of directors? Student Response A. Appointment of an independent auditor. B. Appointment of directors of the corporation. C. Composition of the board. D. Declaration 100% of dividends. General Directors are normally responsible for the appointment and supervision of officers
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Feedback: and signing authorities for banking, the approval of budgets, financing and plans for expansion; the decision to issue shares; and the declaration of dividends and other dispositions of profits. Text reference: Chapter 11: Financing and Listing Securities. Score: 73. Identify the impact on the balance of payments if Canada exported $150 billion of goods and imported $80 billion of goods over the same period, holding all other factors constant. 1/1

Student Value Response A. Balance of trade deficit. B. Capital account deficit. C. Current account surplus. D. Transfer payments surplus. 100%

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General Exports represent the sale of goods and services to consumers outside of Canada Feedback: 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. Text reference: Chapter 4: Economic Principles. Score: 74. Mike is a shareholder of a listed Canadian company that is having its annual general meeting (AGM) in two weeks. The meeting involves changes to the Board of Directors and is considered to be an important meeting. If Mike is unable to attend the AGM but wants to vote, what can he do? Student Value Response A. Complete a proxy ballot prior to 100% Correct Answer Feedback 1/1

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the AGM. B. Send a letter to the Board of Directors directly, specifying his choices. C. Send his wife to attend the AGM with a letter specifying his choices. D. Vote only if he attends the AGM himself. General A proxy is a power of attorney given by a shareholder that gives a designated person Feedback: the authority to vote the shareholders stock at a shareholders meeting. Text reference: Chapter 11: Financing and Listing Securities. Score: 75. Rita, a client of DAS Inc., invests in and receives a prospectus for an IPO on Tuesday, June 7. After reading the prospectus that evening, she returns to DAS on June 8 and demands a refund of the money she invested June 7. What statutory right is Rita invoking? Student Value Response A. Right of action for damages. B. Right of continuous disclosure. C. Right of rescission. D. Right of 100% withdrawal. General The right of withdrawal gives the purchaser the right to withdraw from an agreement
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Feedback: to purchase securities within two business days after the deemed receipt of the companys prospectus. Text reference: Chapter 3: The Canadian Regulatory Environment. Score: 76. Which statement is correct with respect to jurisdiction of incorporation? Student Response Value Correct Answer Feedback 1/1

A. A federally 100% incorporated corporation must obey all provincial laws unless they disagree with federal laws. B. All corporations must be registered federally as they have to pay federal tax. C. It doesn't matter where you incorporate the company as all laws are the same in every jurisdiction. D. Only companies registered federally require directors to be Canadian residents. General Once a decision has been made to incorporate, the jurisdiction of incorporation must Feedback: be selected. In most cases the choice will be whether to incorporate under the laws of
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the province where the corporations chief place of business will be located or to incorporate federally under the Canada Business Corporations Act (CBCA).A provincially incorporated corporation can carry on business in the province of incorporation, but may need a further licence or registration to carry on business in other provinces. A federally incorporated corporation is subject to the laws of general application in a province and may have to register there, but no provincial law may discriminate against a federal corporation so as to deprive it of the powers conferred on it by the federal government. Text reference: Chapter 11: Financing and Listing Securities. Score: 1/1

77. In which financial statement do companies show outsiders non-controlling interest holdings in subsidiary companies? Student Response A. Statement of Cash Flows. B. Statement of Changes in Equity. C. Statement of Comprehensive Income. D. Statement of Financial Position. 100% Value Correct Answer Feedback

General Non-controlling interest appears when a company uses consolidated financial Feedback: statements. Consolidated means that the company combines all the assets, liabilities and operating accounts of the parent company (Statement of Financial Position) with those of its subsidiaries into a single joint statement when a company owns more than 50% of a subsidiary. Even if the parent company owns less than 100% of a subsidiarys stock, all of the assets and liabilities are combined in the consolidated financial statements. To compensate, that part of the subsidiary not owned by the parent company is shown in the consolidated statement of financial position as noncontrolling interest. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 78. An investor purchased a forward on Canadian dollars and his gain was $50,000. Assuming that the forward has an underlying asset of $1,000,000 Canadian dollars, what was the loss for the investor on the other side of the forward contract? Student Value Correct Answer Feedback 1/1

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Response A. $0 B. $50,000 C. $950,000 D. $1,000,000 General Derivatives can be considered a zero-sum game. In other words, aside from Feedback: commission fees and other transaction costs, the gain from an option or forward contract by one counterparty is exactly offset by the loss to the other counterparty: every dollar gained by one party represented a dollar lost by the counterparty on the other side of the contract. Text reference: Chapter 10: Derivatives. Score: 79. What is the term for an investment order that becomes effective as a market sell order when the price of a standard trading unit of stock trades at or below a stated limit? Student Value Response A. Good through order. B. Good till cancelled order. C. Stop buy order. D. Stop loss order. 100% Correct Answer Feedback 1/1 100%

General Stop Loss Order: An order to sell a security when the price of one standard trading Feedback: unit of the security declines to or falls below a certain amount, thus limiting the loss or protecting a paper profit. Stop loss orders become market orders when the stop price is reached. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 80. Where on the Statement of Financial Position will short-term borrowings, taxes payable and trades payable, appear? Student Value Response Current 100%
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A. liabilities.

B. Deferred payments. C. Intangible assets. D. Long-term debt. General Feedback: Common types of current liabilities are: Current portion of long-term debt due in one year. Taxes payable to the government in the near term. Trade payables for unpaid bills for raw materials, supplies and the like. Short-term borrowings from financial institutions. Text reference: Chapter 12: Corporations and their Financial Statements. Score: 1/1

81. NorJet Corp. is experiencing major financial difficulties and will be restructured. Two people will take control of the business through a trust until the company can overcome its difficulties. What is the term for this type of trust? Student Value Response A. Treasury trust. B. Income trust. C. Proxy trust. D. Voting trust. 100% Correct Answer Feedback

General A corporation that is undergoing a restructuring due to financial difficulties may be Feedback: placed under the control of a few individuals through a voting trust. The voting trust is usually put into effect for specific periods of time, or until certain results have been achieved. Text reference: Chapter 11: Financing and Listing Securities. Score: 82.
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What does time value represent in an option premium? Student Value Response A. It represents how many days left until maturity. B. It represents the difference between the strike price and the market price of the underlying security. C. It represents the spread that the options market maker demands for acting as the market maker. D. It 100% represents the volatility and uncertainty of the price of the underlying security. Correct Answer Feedback

General The amount that an option is trading above its intrinsic value is known as the options Feedback: time value. Time value represents the value of uncertainty. Text reference: Chapter 10: Derivatives. Score: 1/1
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83. A $1,000 par value 10-year bond, with a 10% annual coupon, was issued at par 3 years ago. Today an investor purchases the bond for $1,150. Select the correct statement. Student Value Response A. The yield 100% to maturity is 7.20%, and interest rates have decreased. B. The yield to maturity is 7.20%, and interest rates have increased. C. The yield to maturity is 11.51%, and interest rates have decreased. D. The yield to maturity is 11.51%, and interest rates have increased. General Since the market value has increased, interest rates must have fallen. In calculating Feedback: the YTM, the number of years to maturity is 7 not 10. The calculation is FV = 1000, N = 7, PV = $1150, PMT = 100, I = 7.20%. Text reference: Chapter 7: FixedIncome Securities: Pricing and Trading. Score: 84. An investor purchased a $75,000 face value, annual pay Government of Canada 6.50% bond 1/1 Correct Answer Feedback

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due June 1, 2014, at a price of $105.60. The purchase settled 30 days after the last coupon payment. Calculate the amount of accrued interest this investor will pay. Student Value Response A. $193.66 B. $387.33 C. $400.68 D. $409.02 General Par Amount X Coupon Rate X Time Period Feedback: 75000 X 6.5% X 30 divided by 365 = $400.68. Text reference: Chapter 7: Fixed-Income Securities: Pricing and Trading. Score: 85. Identify the primary reason why Canadian provinces require listed companies to solicit proxies at shareholders meetings. Student Response A. To enable the filing of votes and results with the System for Electronic Document Analysis and Retrieval (SEDAR). B. To ensure shareholder approval of decisions made at the annual general meeting. C. To ensure an orderly voting process. D. To prevent 100% managements abuse of shareholders rights.
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General Most provinces require the management of a reporting issuer to solicit proxies from Feedback: holders of its voting securities whenever it calls a shareholders meeting. These regulations were prompted by the realization that effective control of many companies is achieved through the use of proxies and that management could abuse its position in this area by soliciting proxies without proper disclosure. Text reference: Chapter 3: The Canadian Regulatory Environment. Score: 86. What is the term for an investment order that is valid for a specified number of days and then is automatically cancelled if it has not been filled? Student Value Response A. Any part order. B. Good through order. C. Limit order. D. N-C order. General Good Through Order: An order to buy or sell that is good for a specified number of Feedback: 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. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 87. What term describes the process where a new issue of a stock has been given clearance by the regulators to be sold to the public? Student Value Response A. Blue skyed. B. Override. C. Primary. D. Proxy. General The regulators review the documents carefully and may require changes before final Feedback: 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. Text reference: Chapter 11: Financing and Listing Securities.
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88. CRC Inc. needs more capital to complete the building of their new factory. They hope that this new factory will make them very profitable and feel that they can repay the funds in about 5 or 6 years. Their new venture is a bit risky so they dont want to be saddled with an obligation to pay investors if they hit a rough patch at the start. Their major shareholder has insisted that his equity not be diluted. What is the ideal security CRC should issue? Student Value Response A. Callable preferred shares. B. Common shares. C. Convertible preferred shares. D. First mortgage bonds. General Issuers of preferred shares frequently reserve the right to call or redeem preferred Feedback: 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. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 89. When should the owner of retractable preferred shares exercise his retraction option? Student Value Response A. When market rates have decreased. B. When 100% market rates have increased. C. When the company
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has increased the dividend. D. When the companys common shares have increased in value. General Preferred shares trade on a yield basis. If interest rates are high, the price is falling. Feedback: The client could retract the shares and use the money to invest in a security that is paying the higher return. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 90. What does it mean when a right trades on a when issued basis? Student Response Value Correct Answer Feedback 1/1

A. Trading 100% starts on the day the company announces the rights issue. B. Trading starts on the day before the record date. C. Trading starts on the day the rights appear electronically in the shareholders accounts. D. Trading of the rights can only take place before the record date.
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General Because of their short lifetime, rights are often bought and sold on a when-issued Feedback: basis between the date on which the rights are first announced by the company and the date on which the actual rights are received by shareholders. When the rights are issued, all when-issued trades are settled. Text reference: Chapter 10: Derivatives. Score: 91. Dale wants to place his funds in large U.S. industrial companies but doesn't want to buy individual stocks. Recommend an index that best suits his investment objectives. Student Value Response A. Amex Market Value Index. B. S&P/TSX Composite Index. C. Standard 100% and Poor's 500 Composite Index. D. NASDAQ Composite Index. General The S&P is based on a large number of industrial stocks, some financial stocks, some Feedback: utility stocks, and a smaller number of transportation stocks, which are weighted in the index by their market capitalization. The index has become the main gauge for measuring the investment performance of institutional investments in the United States because of its broad industry coverage and the method of weighting the index. Many institutional investors have created investment funds that track the S&P 500. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 92. If the originally borrowed stock in a short sale is called and no other stock can be borrowed to replace it, what action can the broker take to cover the short sale? Student Value Response A. Buy-in. 100% Correct Answer Feedback 1/1 Correct Answer Feedback 1/1

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B. Close-out.

C. Margin call. D. Stop loss. General Buy-in requirements (the obligation to buy back the stock after selling it short) Feedback: 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. Text reference: Chapter 9: Equity Securities: Equity Transactions. Score: 93. Sharif needs to invest $10,000. He says hes interested in a company that will provide taxadvantaged returns. He doesnt really need income although he says stock dividends would be okay. But he is also indifferent about having a vote at the annual meeting. What type of security would you recommend to Sharif? Student Response A. Common shares. B. Debentures. C. Deferred preferreds. D. Floating rate preferred shares. Value 100% Correct Answer Feedback 1/1

General For many investors, the prospect of capital appreciation is the main attraction of Feedback: common shares. Stocks have proven over time that such an attraction is justified, although not all common shares fulfil this expectation, and even those that do will not necessarily increase in value every year. Sharif is interested in tax-advantaged returns and is not focused on generating regular income. Debentures and floating rate preferred shares mainly provide interest income and are not tax-advantaged investments. Deferred preferred shares pay a dividend premium upon maturity that is not entitled to the dividend tax credit. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 94.
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A transportation company would like to issue a new series of bonds by pledging its train cars and locomotives as security instead of real property. What type of fixed-income security will it issue? Student Value Response A. Collateral trust bond. B. Equipment 100% trust certificate. C. Floatingrate debenture. D. Mortgage bond. General Equipment trust certificates pledge equipment as security instead of real property. CP Feedback: Locomotives, for example, issues these kinds of bonds, using its locomotives and train cars (i.e., rolling stock) as security. Text reference: Chapter 6: FixedIncome Securities: Features and Types. Score: 95. How does the subscription price of a right compare to the market price of the underlying share? Student Response Value Correct Answer Feedback 1/1 Correct Answer Feedback

A. The 100% subscription price is set at a discount to the market price. B. The subscription price is set at a premium to the market price. C. The subscription price is based on the 3 day
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average of the stock price prior to issue date. D. They are equal at the time of issue. General The exercise price of a right, known as the subscription or offering price, is the Feedback: price shareholders pay to purchase additional shares of the company. The offering price is almost always lower than the market price of the shares at the time the rights are issued. This makes the rights valuable and gives shareholders an incentive to exercise them. Text reference: Chapter 10: Derivatives. Score: 96. ABC Ltd., an investment dealer, is the sole underwriter of a new $300 million share issue by MIR Ltd. ABC has agreed to act as the principal on this issue. What is the implication of the arrangement between ABC and MIR? Student Response A. ABC is MIRs agent and will hold and safeguard the acquired securities. B. ABC will purchase the entire issue from MIR and resell it to investors. C. ABCs profits will consist solely of the commissions that it charges on the trades. D. MIR takes all of the risk if the new issue does not
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sell. General In the securities business, underwriting or financing has come to mean the purchase Feedback: from a government body or a company of a new issue of securities on a given date at a specified price. The dealers act as principals, using their own capital to buy the issue in anticipation of being able to make a profit when later selling it to others in the primary or new issue market. The dealers also accept a risk since market prices may fall during the time the securities remain in their inventory. Text reference: Chapter 2: The Canadian Securities Industry. Score: 97. Which statement best describes the Dow Jones Industrial Average (DJIA)? Student Response A. A broadbased average dominated by smaller capitalization companies. B. A capitalizationweighted average of 30 actively traded bluechip stocks. C. A market 100% priceweighted average of 30 actively traded bluechip stocks. D. A market priceweighted average of 30 over-thecounter stocks. General Although normally around 2,300 issues trade daily on the New York Stock Exchange, Feedback: the most publicity is given to the trading performance of the 30 issues that make up the Dow Jones Industrial Average. Text reference: Chapter 8: Equity Securities: Common and Preferred Shares.
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98. What type of financial intermediary owns securities as part of its inventory? Student Response A. Agent. B. Broker. C. Principal. D. Underwriter. General When acting as a principal, the dealer owns securities as part of its inventory when Feedback: conducting transactions with clients and investors. Text reference: Chapter 2: The Canadian Securities Industry. Score: 99. XYZ Diamond Corp. Series A preferred shares are entitled to cumulative preferential cash dividends. The annual dividend rate is 75% of the prime rate. The dividend rate is set on the last business day of the preceding month. What type of preferred share is this? Student Response A. Auction. B. Deferred. C. Participating. D. Variable rate. 100% Value Correct Answer Feedback 1/1 100% Value Correct Answer Feedback

General Variable-rate preferreds pay dividends in amounts that fluctuate to reflect changes in Feedback: interest rates. If interest rates rise, so will dividend payments, and vice versa. When the issuer believes interest rates will not go much higher than they are at the date of issuance of the new issue. The company, in any event, is prepared to pay a higher dividend if interest rates rise. Of course, if interest rates decline, the issuer will pay a smaller dividend (subject in most cases to a guaranteed minimum rate). Text reference: Chapter 8: Equity Securities: Common and Preferred Shares. Score: 100. Which of the following statements about inflation is correct? 1/1

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Student Value Response A. Higher inflation improves real asset returns. B. Inflation enhances the value of money. C. M1 is the leading indicator for the rate of inflation. D. Rising 100% inflation decreases the standard of living.

Correct Answer Feedback

General Inflation imposes many costs on the economy: it erodes the standard of living of Feedback: those on a fixed income and those who lack wage bargaining power. Text reference: Chapter 4: Economic Principles. Score: 1/1

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