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Web-based Canadian Securities Course Exam2 (CSC2) practice test of Exams4sures is accessible from any place. You merely need an active internet connection to take this CSI CSC2 practice exam. Browsers including MS Edge, Internet Explorer, Safari, Opera, Chrome, and Firefox support this Canadian Securities Course Exam2 (CSC2) practice exam. Additionally, this Canadian Securities Course Exam2 (CSC2) test is supported by operating systems including Android, Mac, iOS, Windows, and Linux.
NEW QUESTION # 85
Which type of ETF is also referred to as smart beta ETF?
Answer: D
Explanation:
Rules-based ETFs, also known as smart beta ETFs, use predetermined rules or algorithms to select and weight securities in their portfolios. These ETFs aim to outperform traditional market-capitalization-weighted ETFs by targeting specific factors such as value, momentum, quality, or volatility.
* Strategic Factor Weighting: Securities are weighted based on fundamental or quantitative factors, not just market capitalization.
* Higher Returns Potential: These ETFs are designed to capture excess returns (alpha) relative to a benchmark.
* Lower Costs: Smart beta strategies often combine active and passive management elements at a lower cost than traditional active funds.
* A. Rules-based: Correct answer. Smart beta ETFs are built on rule-based frameworks designed to achieve specific investment objectives.
* B. Standard: Refers to traditional, market-cap-weighted ETFs, not smart beta.
* C. Synthetic: Refers to ETFs that use derivatives to replicate returns of an underlying index, unrelated to smart beta.
* D. Index-based: Includes standard ETFs tracking an index but does not apply specifically to smart beta.
:
CSC Volume 2, Chapter 19: Smart Beta and Rules-Based ETFs, which describes their unique features, benefits, and strategies.
NEW QUESTION # 86
A fixed-rate bond was originally priced at $100 and paid $5 per year in interest. Currently, the bond is trading at $102.75. What is the impact on the current yield of coupon of the bond as a result of the change in price?
Answer: A
Explanation:
Thecoupon rateof the bond remains fixed at5%, as it is based on the bond's original par value of $100.
Thecurrent yield, however, decreases because the bond's price has increased to $102.75. Current yield is calculated as:
Current Yield=Coupon PaymentCurrent Price\text{Current Yield} = \frac{\text{Coupon Payment}}{\text
{Current Price}}Current Yield=Current PriceCoupon Payment
Given:
* Coupon Payment= $5
* Current Price= $102.75
Current Yield=5102.75#4.87%\text{Current Yield} = \frac{5}{102.75} \approx 4.87\%Current Yield=102.
755#4.87%
* A. The coupon is higher than 5%: The coupon remains fixed at 5%.
* B. The current yield is higher than 5%: The current yield is lower than 5% due to the increased price.
* D. The coupon is lower than 5%: The coupon does not change with the bond's price.
NEW QUESTION # 87
Franco purchased an ETF in his non-registered account, and his total adjusted cost base in year 1 was
$30,000. The ETF distributes income each year. And this reinvested distribution total was $1,750. The ETF also distributes a return of capital of $850. What would Franco's total capital gain be if the sold the ETF for
$39,000?
Answer: A
Explanation:
To calculate Franco's total capital gain, we adjust the adjusted cost base (ACB) for reinvested distributions and return of capital (ROC).
* Initial ACB: $30,000.
* Add Reinvested Distributions: Reinvested distributions increase the ACB. 30,000+1,750=31,75030,000
+ 1,750 = 31,750 30 , 000 + 1 , 750 = 31 , 750
* Subtract Return of Capital: ROC reduces the ACB. 31,750#850=30,90031,750 - 850 = 30,900 31 , 750
# 850 = 30 , 900
* Calculate the Capital Gain: Subtract the adjusted ACB from the sale price. 39,000#30,900=8,10039,000
- 30,900 = 8,100 39 , 000 # 30 , 900 = 8 , 100
* A. $1,250: Incorrect, likely a miscalculation of adjusted ACB.
* B. $8,100: Correct, based on accurate ACB adjustments and sale price.
* C. $6,400: Incorrect, ignores reinvested distributions.
* D. $9,000: Incorrect, ignores the impact of ROC adjustments on ACB.
References:
CSC Volume 2, Chapter 19: Adjusted Cost Base Calculations, which explains the impact of reinvested distributions and ROC on capital gains.
NEW QUESTION # 88
In which type of ETF does the portfolio manager select securities and their weighting to best match the performance of an index?
Answer: B
Explanation:
In ETFs, portfolio management involves selecting securities to match an index ' s performance. Full replication is a method where the portfolio manager buys all the securities in the index in their exact proportions.
* Full Replication:
* Involves holding every security in the index.
* Ensures minimal tracking error and high fidelity to the benchmark.
* Suitable for highly liquid and straightforward indexes like the S & P/TSX Composite.
* Sampling:
* Used for large, complex indexes where holding all securities is impractical.
* Selects a representative sample to approximate the index ' s performance.
* Rules-Based and Synthetic ETFs:
* Employ predefined rules or derivatives rather than physical securities.
Option D reflects the primary method of mirroring an index ' s performance through full replication, ensuring accuracy and minimal tracking error.
References:
Volume 2, Section 19: Exchange-Traded Funds-Full Replication vs. Sampling.
Volume 2, Section 13: Efficient Market Hypothesis-Implications for Passive Management.
NEW QUESTION # 89
An investor wants to gain exposure to the Canadian stock market with minimal risk exposure. What is the test financial instrument for this investor?
Answer: C
Explanation:
The investor's goal is to gainexposure to the Canadian stock marketwhile maintainingminimal risk exposure. Among the provided options, anindex-linked guaranteed investment certificate (GIC)is the most suitable choice.
Key Characteristics of an Index-Linked GIC:
* Capital Protection:
* Index-linked GICs guarantee the principal investment amount, offering the security of a GIC while tying returns to the performance of a stock index (e.g., the S&P/TSX Composite Index).
* This ensures no loss of capital regardless of market performance.
* Market Exposure:
* The return on an index-linked GIC is linked to the performance of the underlying index, providing exposure to the stock market. However, this comes without the downside risk associated with direct stock or fund investments.
* Low Risk:
* The combination of principal protection and market exposure makes it ideal for risk-averse investors seeking growth potential.
Review of Other Options:
* A. Canadian Bank Preferred Shares:
* While preferred shares provide stable dividends and relatively low volatility compared to common shares, they still carry market risk and are not as secure as GICs.
* B. Index Exchange-Traded Fund (ETF):
* ETFs track stock indices and offer diversification, but they expose investors to the full market risk of the underlying index, making them unsuitable for those seeking minimal risk exposure.
* C. Call Option:
* Call options are speculative derivatives that provide leverage for market exposure but carry significant risk of loss, making them inappropriate for a low-risk investor.
Why D is Correct:
Anindex-linked GICbalances the investor's objective of gaining exposure to the Canadian stock market with the need for minimal risk by guaranteeing principal protection while offering potential returns tied to market performance.
References:
* Canadian Securities Course (CSC), Volume 1, Chapter 6: Fixed-Income Securities - Features and Types. Discussion on index-linked GICs and their suitability for risk-averse investors.
* Explanation of risk characteristics of preferred shares, ETFs, and derivatives in Chapter 8 and 10 of Volume 1.
NEW QUESTION # 90
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