CSI CSC2 Exam Questions Instant Access - No Installation Required

Question 1

What type of return is calculated for a security held for 18 months if no adjustments to the return are made?

AEffective rate of return.

BNominal rate of return.

CAnnualized total return.

DHolding period return.

Answer : D

The return on a security held for a specific period, such as 18 months, without adjusting for time or compounding, is referred to as the holding period return (HPR). This straightforward calculation assesses total returns over the period of ownership.

1. Definition of Holding Period Return: The HPR is calculated as:

HPR=(EndingValue-InitialValue)+DividendsReceivedInitialValueHPR = \frac{{\text{(Ending Value - Initial Value) + Dividends Received}}}{{\text{Initial Value}}}HPR=InitialValue(EndingValue-InitialValue)+DividendsReceived

This measure evaluates total growth, disregarding compounding or annualization.

2. Other Return Types (Incorrect Answers):

Effective Rate of Return: Reflects annualized returns considering compounding within a year. It is not applicable to non-annualized periods like 18 months.

Nominal Rate of Return: The unadjusted rate of return without accounting for inflation. While related, it does not specifically refer to the holding period concept.

Annualized Total Return: This adjusts returns to reflect an annual basis, assuming constant performance throughout the period. It is unsuitable for raw, unadjusted returns like the HPR.

Reference from CSC Study Documents:

Chapter 15, Volume 2: Covers the calculation of different return metrics, with detailed examples of HPR and its application.

Portfolio Return Analysis in Section 15 explains the non-compounded nature of holding period calculations.

Let me know if further details or clarifications are needed!

Question 2

What is a characteristic of the FTSE Canada Universe Bond Index?

AIt measures the total price return on bonds including realized and unrealized gains

BIt represents a full cross-section of government and corporate bonds.

CIt Includes Canadian investment-grade bonds with a term to maturity of one year or less.

DIt is an equal-weighted bond Index with each bond representing the same weight within the index.

Answer : B

The FTSE Canada Universe Bond Index represents a comprehensive cross-section of investment-grade government and corporate bonds denominated in Canadian dollars. It includes bonds with a term to maturity of one year or more and excludes high-yield (non-investment-grade) bonds.

Why Other Options are Incorrect:

A . It measures the total price return on bonds including realized and unrealized gains: The index does not account for realized gains; it tracks price movements and interest income.

C . It includes Canadian investment-grade bonds with a term to maturity of one year or less: Bonds in this index must have a term to maturity of at least one year, not less.

D . It is an equal-weighted bond index with each bond representing the same weight within the index: The FTSE Canada Universe Bond Index is capitalization-weighted, not equal-weighted.

Reference: CSC Volume 1, Chapter 7, 'Bond Indexes -- FTSE Canada Universe Bond Index' explains the composition and characteristics of the index.

Question 3

Which statement best describes the Sharpe ratio?

AIt compares the return of the portfolio with the return of the market as a whole, relative to the portfolio's risk as measured by its standard deviation.

BIt compares the return of the portfolio with the riskless rate of return, relative to the portfolio's risk as measured by its standard deviation.

CIt compares the return of the portfolio with the return of the market as a whole, relative to the portfolio's risk as measured by its beta.

DIt compares the return of the portfolio with the riskless rate of return, relative to the market's risk as measured by its standard deviation.

Answer : B

Question 4

Soft-dollar arrangements can be used for which type of service?

AAdvice.

BSales.

CResearch.

DUnderwriting.

Answer : C

Question 5

Which type of market participant is generally regulated as an alternative trading system?

AVenture exchange

BPink sheets

CDark pool

DOver-the-counter bulletin board.

Answer : C

An alternative trading system (ATS) is a trading platform that is not a formal stock exchange but allows for the buying and selling of securities. A dark pool is a type of ATS where trade details are not displayed until after execution, providing anonymity to large institutional trades. Other options like venture exchanges, pink sheets, and OTC bulletin boards are not considered ATSs.

Volume 1, Chapter 9, 'Alternative Trading Systems'.

Question 6

What is an example of a common feature of robo-advisor services?

AThe service is exclusively provided to intermediaries such as advisors and employers

BThe portfolios are rarely rebalanced

CPortfolios are built primarily with individual stocks and bonds.

DA telephone call with an advisor verifies that the computer-generated portfolio is suitable for the client.

Answer : D

Many robo-advisors offer a hybrid model where an automated portfolio recommendation is supplemented by human oversight. A telephone call with an advisor ensures the portfolio generated by the algorithm aligns with the client's risk tolerance and investment objectives. This step helps meet regulatory suitability requirements.

Why Other Options are Incorrect:

A . The service is exclusively provided to intermediaries such as advisors and employers: Robo-advisors are directly available to retail clients and are not exclusive to intermediaries.

B . The portfolios are rarely rebalanced: Robo-advisors typically offer frequent or automatic rebalancing to maintain target asset allocations.

C . Portfolios are built primarily with individual stocks and bonds: Robo-advisors predominantly use ETFs for diversification and cost-efficiency, not individual securities.

Reference: CSC Volume 1, Chapter 1, 'Financial Technology -- Robo-Advisors' highlights the hybrid models and regulatory compliance processes employed by robo-advisors

Question 7

When a futures contract is entered into, who sets the minimum initial margin rate?

Ainvestment dealer

BBuyer

CSeller

DExchange

Answer : D

The exchange that lists and trades the futures contract sets the minimum initial margin rate. This margin is required as collateral to ensure performance under the contract. The exchange determines this rate based on the volatility and risk of the underlying asset, and it is subject to adjustment depending on market conditions.

Other options:

Investment dealer: Acts as a facilitator but does not set the margin rates.

Buyer/Seller: Must meet the margin requirements but do not set them.

Volume 1, Chapter 10: Derivatives, section on 'Futures Contracts' describes the role of exchanges in setting margin requirements.

CSI Canadian Securities Course Exam 2 CSC2 Exam Questions