Free CSC1 Core Readiness Practice Questions

This free preview contains 24 original questions: seven Industry Readiness, ten Technical Readiness and seven Client Readiness questions. Three include diagrams. Choose one best answer per question, then read the explanation and the rationale for every alternative.

This is a question-style preview, not a full-length official-exam simulation. CSI has announced the new program’s subject areas, but its final-exam specifications are still pending. For the existing course, use classic CSC Exam 1 practice .

These are original Finance Prep practice questions. Mastery Exam Prep is independent from CSI; these are not official CSI questions, copied live-exam content, or exam dumps.

Practice questions

Questions 1-24

Question 1

Topic: Industry Readiness

Cedar Mobility Inc., a Canadian reporting issuer, completes a prospectus offering of newly issued common shares. A dealer syndicate distributes the shares, and Cedar receives CAD 60 million in net proceeds.

Six months later, an investor sells 2,000 Cedar shares to another investor through the TSX. The selling investor receives the sale proceeds, and Cedar is not a party to the trade.

Which interpretation of these transactions is supported?

• A. The prospectus sale is secondary because the syndicate initially buys the shares, while the TSX sale is secondary because an investor sells them.
• B. The prospectus sale and the TSX sale are both primary transactions because buyers exchange cash for Cedar’s outstanding common shares.
• C. The prospectus sale is secondary because dealers distribute the shares, while the TSX sale is primary because the marketplace matches a new buyer.
• D. The prospectus sale is a primary offering that raises issuer capital, while the TSX sale is a secondary trade between investors.

Best answer: D

What this tests: Industry Readiness

Explanation: A primary offering provides capital to an issuer through the sale of newly issued securities. Dealers may underwrite or distribute those securities, but their involvement does not change the offering’s primary-market character. Cedar receives the CAD 60 million proceeds, so the prospectus offering raises equity capital for the company.

A secondary-market trade transfers an existing security from one investor to another. In the TSX transaction, the buyer’s payment goes to the selling investor, not Cedar. Secondary markets provide liquidity and price discovery and may indirectly support an issuer’s future financing opportunities, but an ordinary secondary trade does not itself provide new capital to the issuer.

• A. A dealer syndicate’s participation does not make the issuance secondary when new shares are sold and the issuer receives the proceeds.
• B. Cash exchanged for existing shares in the TSX trade goes to the seller rather than providing new capital to Cedar.
• C. Marketplace matching does not create new securities or issuer proceeds, while dealer distribution can be part of a primary offering.
• D. Cedar issues new shares and receives the offering proceeds, whereas the later trade transfers existing shares and pays the selling investor.

Question 2

Topic: Industry Readiness

Baseline: A household invests $20,000 in a one-year GIC issued by a bank. The bank uses pooled funding to purchase a newly issued bond from Northstar Ltd. The GIC return is not contractually tied to that bond.

Changed condition: Instead, the household subscribes for $20,000 of units in a Canadian bond mutual fund, which uses the cash to purchase the same new bond. Assume no fees or other transactions.

Relative to the baseline, how does the changed condition alter the economic claims?

• A. The household holds fund units representing an interest in net assets; the fund portfolio holds the corporate bond; the corporation’s bond obligation is to the fund.
• B. The household holds fund units representing an interest in net assets; the bank holds the corporate bond as its asset; the corporation’s bond obligation is to the bank.
• C. The household retains a fixed GIC claim against the bank; the fund portfolio holds the corporate bond; the corporation’s bond obligation is to the fund.
• D. The household holds the corporate bond through direct ownership; the fund units are an administrative record; the corporation’s bond obligation is to the household.

Best answer: A

What this tests: Industry Readiness

Explanation: In the baseline, the GIC is the household’s contractual claim against the bank and a liability of the bank. The corporate bond is a separate asset of the bank and represents the corporation’s obligation to make payments to the bank. The household has no direct claim against Northstar Ltd.

With the changed condition, the household receives mutual fund units rather than a bank deposit claim. The units represent an interest in the fund’s net assets, and their value reflects the fund portfolio’s performance. The fund uses the subscription proceeds to acquire the newly issued corporate bond, so the bond is an asset of the fund portfolio and the corporation’s payment obligation runs to the fund. This structure transfers bond performance to the fund’s net asset value rather than preserving the bank’s fixed GIC promise.

• A. The subscription gives the household fund units, while the fund acquires the bond and becomes the corporate issuer’s creditor.
• B. The mutual fund, not the bank, deploys the subscription proceeds and holds the bond in its investment portfolio.
• C. Under the changed condition, the household does not purchase a GIC, so no deposit claim against the bank arises.
• D. The household owns fund units rather than the underlying bond, so it is not the corporation’s direct creditor.

Question 3

Topic: Industry Readiness

An Ontario reporting issuer sells securities under a prospectus through a CIRO investment dealer. The issuer prepares the prospectus, while the dealer uses branch reviews and compliance procedures to supervise its registered representatives.

Which statement most accurately identifies the obligations and their sources?

• A. Securities legislation and regulator rules govern the issuer’s prospectus disclosure, while CIRO rules require the dealer to supervise its registered representatives.
• B. Securities legislation governs both prospectus disclosure and branch supervision, while CIRO provides non-binding guidance on how dealers may supervise.
• C. Securities-regulator rules govern both prospectus disclosure and branch supervision, while CIRO becomes involved only after a dealer breach occurs.
• D. CIRO rules govern the issuer’s prospectus disclosure, while securities legislation assigns supervision of registered representatives directly to the issuer.

Best answer: A

What this tests: Industry Readiness

Explanation: Canadian securities legislation is enacted by provincial or territorial legislatures. Securities regulators administer that legislation and make binding rules under delegated authority. Together, legislation and regulator rules establish obligations such as an issuer’s required prospectus disclosure.

CIRO is a recognized self-regulatory organization. Its rules impose obligations on member investment dealers and their approved persons, including requirements for supervision, compliance systems and conduct. A dealer implements these obligations through measures such as branch reviews, supervisory approvals and compliance procedures.

The distribution relationship does not transfer the issuer’s disclosure duties to CIRO or make the issuer responsible for supervising the dealer’s representatives. Similarly, securities-regulator oversight does not eliminate the dealer’s separate CIRO obligations. Provincial regulators recognize and oversee CIRO, while CIRO directly regulates its members within its assigned mandate.

• A. Prospectus disclosure is an issuer obligation under securities law, while supervision is a CIRO obligation imposed on the member dealer.
• B. CIRO dealer rules are binding on member dealers and approved persons rather than merely providing optional supervisory guidance.
• C. CIRO establishes ongoing dealer obligations, including supervision, and does not operate solely as an enforcement body after misconduct.
• D. CIRO does not impose prospectus obligations on issuers, and the issuer is not responsible for supervising the dealer’s registered representatives.

Question 4

Topic: Industry Readiness

A representative reviews the following trade record:

10:02 Client instruction: "Buy 200 NMC shares, limit $25.00, day order."
10:04 Order entered: Buy 2,000 NMC shares, limit $25.00, day order.
10:04 Execution status: Fully filled, 2,000 shares at an average of $24.90.
10:07 Error discovered while reviewing the fill.
Authority: The representative may amend or cancel open orders only.
Completed-trade errors must be reported immediately to the supervisor and Trade Corrections.
No offsetting trade or rebooking may be initiated without approval.

What next action does this record support?

• A. Treat the order as partially filled, retain 200 shares for the client, and cancel the remaining 1,800 shares through the marketplace.
• B. Treat the excess shares as an unwanted position, sell 1,800 shares promptly, and then report both executions to the supervisor.
• C. Treat the order as open, amend its quantity to 200 shares, and send the revised order record to Trade Corrections.
• D. Treat the order as completed, report the error immediately to the supervisor and Trade Corrections, and await authorized correction instructions.

Best answer: D

What this tests: Industry Readiness

Explanation: The client’s instruction was for 200 shares, but the representative entered and obtained a full execution for 2,000 shares. Because the error was discovered after the entire order had traded, it cannot be handled like an open or partially filled order. There is no remaining quantity to amend or cancel.

The representative also has no authority to rebook the completed trade or enter an offsetting sale independently. The required next step is therefore to report the completed-trade error immediately through the firm’s designated supervisory and trade-correction process. That process determines how the erroneous execution will be handled and what communication or corrective action is authorized. The original client instruction, entered order, execution details and discovery time should remain accurately documented rather than being altered to make the records appear consistent.

• A. The record shows that all 2,000 shares were filled, leaving no unexecuted balance available for cancellation.
• B. An offsetting sale would create another transaction and is outside the representative’s stated correction authority without prior approval.
• C. A fully filled order is no longer open, so changing the entered quantity would not correct the completed execution.
• D. The full fill occurred before discovery, and the representative lacks authority to rebook the trade or initiate an offsetting transaction.

Question 5

Topic: Industry Readiness

A Canadian public company has 1,000,000 common shares outstanding. Leah and Marc each own 100,000 shares before the company issues 250,000 additional common shares.

• Leah does not participate in the issue.
• Marc purchases 25,000 of the new shares.
• No other share transactions occur.

Which comparison correctly describes their share counts and proportionate ownership immediately after the issue?

• A. Leah owns 100,000 shares and 8%; Marc owns 100,000 shares and 8%.
• B. Leah owns 100,000 shares and 10%; Marc owns 125,000 shares and 10%.
• C. Leah owns 100,000 shares and 8%; Marc owns 125,000 shares and 10%.
• D. Leah owns 100,000 shares and 8%; Marc owns 125,000 shares and 12.5%.

Best answer: C

What this tests: Industry Readiness

Explanation: After the issue, the company has 1,250,000 shares outstanding. Leah still owns 100,000 shares, so her proportionate interest becomes \(100{,}000 \div 1{,}250{,}000 = 8\%\). Her share count did not decline, but her percentage ownership was diluted.

Marc owns 125,000 shares after buying 25,000 new shares. His interest is \(125{,}000 \div 1{,}250{,}000 = 10\%\), so his proportional participation preserves his original ownership percentage. Percentage dilution does not by itself establish dollar-value dilution. Determining the change in investment value would require information about the company’s value and the post-issue share price.

• A. Marc’s purchase increases his share count to 125,000 and preserves his 10% proportionate interest.
• B. Leah’s share count is unchanged, but the larger number of outstanding shares reduces her ownership to 8%.
• C. The issue raises total shares to 1,250,000, making Leah’s interest 8% and Marc’s interest 10%.
• D. Marc’s 125,000 shares must be divided by the new total of 1,250,000, not the original total.

Question 6

Topic: Industry Readiness

A Canadian investment dealer buys 500 units of a Canadian-listed ETF for a client on Monday, March 9, 2026. The ETF settles regular-way on T+1, and there is no intervening holiday.

Transaction record:

• 9:30 a.m.: The client’s buy instruction is entered.
• 9:31 a.m.: The marketplace reports an execution at $25.00 per unit.
• 5:00 p.m.: The clearing report shows a matched trade and requires the dealer to pay $12,500 and receive 500 units.
• No transfer of cash or ETF units has yet been recorded.

The client’s account contains sufficient settled cash. Which record should appear next to establish that the dealer’s outstanding settlement obligation has been discharged?

• A. A March 10 custody ledger showing 500 units allocated to the client’s account for safekeeping.
• B. A March 10 clearing report showing the matched trade and the same net receive-and-pay obligations.
• C. A March 10 settlement-system report showing final delivery of 500 units against payment of $12,500.
• D. A March 10 client trade confirmation restating the execution price, quantity, and contractual settlement date.

Best answer: C

What this tests: Industry Readiness

Explanation: Order entry records the client’s instruction, while execution records the completed marketplace trade and establishes its price and quantity. Clearing then matches the trade and determines the securities and payment obligations of the participating dealers. At the end of Monday, those obligations remain outstanding because neither cash nor ETF units has been transferred.

Regular-way T+1 settlement occurs on Tuesday, March 10. A settlement-system record showing delivery of the ETF units against payment establishes that the obligations have been discharged. A custody entry concerns the subsequent or related safekeeping and account allocation of the units; it is not the definitive record of market-level settlement.

• A. A custody ledger records holdings under safekeeping arrangements but does not itself prove completion of the dealer’s settlement transfers.
• B. A clearing report determines the dealer’s obligations but does not establish that the required transfers have occurred.
• C. The delivery-versus-payment record confirms that the securities and cash were exchanged on the T+1 settlement date.
• D. A trade confirmation documents the executed terms and expected settlement date rather than confirming completed delivery and payment.

Question 7

Topic: Industry Readiness

A Canadian equity has the following displayed quote:

• Bid: $24.18 for 1,000 shares
• Ask: $24.23 for 800 shares

A client submits a market order to buy 600 shares. Assume the quote remains unchanged, the order receives one complete fill, and a $9.95 commission is added to the purchase cost. There are no other fees.

Which set correctly states the execution price, quoted spread per share, and total cash required?

• A. Execution price: $24.28; spread: $0.05; total cash required: $14,577.95
• B. Execution price: $24.23; spread: $0.05; total cash required: $14,547.95
• C. Execution price: $24.23; spread: $0.05; total cash required: $14,528.05
• D. Execution price: $24.18; spread: $0.05; total cash required: $14,517.95

Best answer: B

What this tests: Industry Readiness

Explanation: A two-sided quote shows the highest displayed bid and lowest displayed ask. An investor buying at the market normally pays the ask, while an investor selling normally receives the bid. Here, the ask displays 800 shares, enough to fill the client’s 600-share order at $24.23 under the stated assumptions.

The quoted spread is separate from the commission:

The purchase value is 600 x $24.23 = $14,538.00. Because the commission is an additional transaction cost, total cash required is $14,538.00 + $9.95 = $14,547.95.

• A. The quoted spread should not be added to the ask; doing so produces the incorrect calculation 600 x $24.28 + $9.95 = $14,577.95.
• B. The purchase executes at the ask, the spread is $24.23 - $24.18 = $0.05, and total cash is 600 x $24.23 + $9.95 = $14,547.95.
• C. The execution price and spread are correct, but the commission was subtracted rather than added: 600 x $24.23 - $9.95 = $14,528.05.
• D. The calculation uses the bid price, which applies to an investor selling rather than buying: 600 x $24.18 + $9.95 = $14,517.95.

Question 8

Topic: Technical Readiness

A client buys a bond with these terms:

• Face amount: $25,000
• Market price paid: $24,000
• Coupon rate: 4.8% per year
• Payment frequency: Semi-annual

Which statement correctly identifies the bond’s annual cash interest and each semi-annual payment?

• A. Annual cash interest is $600, and each payment is $300.
• B. Annual cash interest is $2,400, and each payment is $1,200.
• C. Annual cash interest is $1,200, and each payment is $600.
• D. Annual cash interest is $1,152, and each payment is $576.

Best answer: C

What this tests: Technical Readiness

Explanation: A bond’s coupon rate is applied to its face amount, not its market price. Therefore, annual coupon interest is $25,000 x 4.8% = $1,200. Because interest is paid semi-annually, the bond makes two equal payments each year, so each payment is $1,200 / 2 = $600.

The $24,000 purchase price does not change the contractual coupon payments. It is relevant when calculating current yield: $1,200 / $24,000 = 5.0%. Thus, annual coupon income remains $1,200 even though the current yield differs from the stated 4.8% coupon rate.

• A. This divides twice: $25,000 x 4.8% / 2 = $600 is already one semi-annual payment, not annual interest.
• B. This treats the $1,200 annual coupon as each semi-annual payment and then incorrectly doubles it to $2,400.
• C. The coupon uses face amount: $25,000 x 4.8% = $1,200 annually, and $1,200 / 2 = $600 per payment.
• D. This incorrectly applies the coupon rate to market price: $24,000 x 4.8% = $1,152, then divides by two.

Question 9

Topic: Technical Readiness

Maya has held 2,000 units of the Maple Canadian Equity Fund for three years. The fund has held Northstar Inc. shares throughout that period.

“Because I own part of the fund, I should receive Northstar’s dividend directly and submit voting instructions for its shareholder meeting.”

Records:

• Maya’s account statement lists only mutual fund units.
• Northstar’s records identify the fund’s custodian or nominee as the registered shareholder.
• The fund reported Northstar dividend income and included the Northstar vote in its proxy voting record.

Which explanation best accounts for the difference between Maya’s expectation and the records?

• A. She acquired the fund units after Northstar’s record date, so direct Northstar rights will begin on the issuer’s next record date.
• B. She owns fund units rather than Northstar shares, so Northstar dividends and voting rights are administered at the fund level.
• C. She beneficially owns fractional Northstar shares, so the dealer should pass through Northstar dividends and voting instructions despite nominee registration.
• D. Her fund interest represents less than one Northstar share, so direct Northstar rights begin only after that threshold is reached.

Best answer: B

What this tests: Technical Readiness

Explanation: A mutual fund investor owns units of the pooled vehicle, not separate portions of every security in its portfolio. The fund holds the Northstar position through its custodian or nominee. Northstar therefore pays dividends and provides shareholder voting rights through that registered holding structure. The fund manager exercises portfolio voting rights according to the fund’s proxy voting policies.

Northstar’s dividend becomes income of the fund. It may increase the fund’s assets and may later contribute to a fund distribution, depending on the fund’s distribution policy. Maya participates economically through the value and distributions of her units, but she does not control Northstar shares or receive Northstar’s shareholder rights directly. Any voting rights Maya has as a unitholder concern applicable fund matters, not each portfolio issuer.

• A. Maya held the units throughout the period, and owning fund units does not create direct issuer rights on a later record date.
• B. A unitholder participates in the pooled fund’s value and distributions but does not become the holder of each portfolio security.
• C. Nominee registration can apply to a direct security position, but Maya’s account records fund units rather than beneficial ownership of Northstar shares.
• D. No whole-share threshold converts proportional economic exposure through a mutual fund into direct ownership of a portfolio security.

Question 10

Topic: Technical Readiness

A client holds one call option on shares of a Canadian issuer.

• The call has a $48.00 strike price and covers 100 shares.
• The client paid a premium of $1.75 per share.
• Immediately before expiry, the shares trade at $52.40.

What is the total intrinsic value of the client’s option position?

• A. The total intrinsic value is $175.
• B. The total intrinsic value is $440.
• C. The total intrinsic value is $265.
• D. The total intrinsic value is $4.40.

Best answer: B

What this tests: Technical Readiness

Explanation: A call option gives its holder the right to buy the underlying shares at the strike price. Its intrinsic value per share is the greater of the market price minus the strike price and zero.

Here, the call is in the money by $52.40 minus $48.00, or $4.40 per share. Because the contract covers 100 shares, its total intrinsic value is $4.40 times 100, or $440.

The $1.75 premium affects the client’s overall gain or loss but not intrinsic value. The premium cost is $175, so the gain before commissions would be $440 minus $175, or $265. If exercised, the call writer must sell the 100 shares at the $48.00 strike price.

• A. This is the premium paid, calculated as $1.75 per share times 100 shares, not the option’s intrinsic value.
• B. The call is $4.40 in the money per share, and multiplying by 100 shares gives $440.
• C. This subtracts the $175 premium from the $440 intrinsic value, producing the gain before commissions rather than intrinsic value.
• D. This is the intrinsic value per share but does not account for the contract size of 100 shares.

Question 11

Topic: Technical Readiness

A Canadian exporter expects to receive USD1,250,000 on Thursday, September 18, and then convert it to CAD. The exporter wants to hedge the full amount through the receipt date.

• Futures hedge: Take a short position in 12 exchange-traded currency futures. Each contract is for USD100,000, whole contracts are required, and expiry is Wednesday, September 17.
• Forward hedge: Enter an OTC contract with a bank to sell USD1,250,000 on September 18. The bank accepts these exact terms.

Assume both dates are business days. Which response accurately compares the exposure fit and counterparty structure?

• A. The futures hedge covers USD1.2 million and expires one day early, with a clearing corporation interposed; the forward matches the amount and date, with the bank as bilateral counterparty.
• B. The futures hedge covers USD1.2 million and expires one day early, with the original futures seller as bilateral counterparty; the forward matches the amount and date and is centrally cleared.
• C. The futures hedge covers USD1.2 million and is date-matched because expiry is the preceding business day, with a clearing corporation interposed; the forward matches the amount and date, with the bank as bilateral counterparty.
• D. The futures hedge covers USD1.25 million through fractional contract equivalence and expires one day early, with a clearing corporation interposed; the forward matches the amount and date, with the bank as bilateral counterparty.

Best answer: A

What this tests: Technical Readiness

Explanation: Exchange-traded futures have standardized contract sizes and expiry dates. Twelve contracts at USD100,000 each cover USD1,200,000, leaving USD50,000 unhedged. An exact amount match would require 12.5 contracts, but fractional contracts are unavailable. The September 17 expiry also creates a timing mismatch because the receivable remains exposed until September 18.

A clearing corporation is interposed in an exchange-traded futures contract, reducing direct bilateral counterparty exposure between the original buyer and seller. An OTC forward can be customized for the precise amount and settlement date. Here, the USD1,250,000 forward settling September 18 matches the exposure, but the exporter has bilateral counterparty exposure to the bank.

• A. Twelve futures cover USD1.2 million, and their September 17 expiry precedes the receipt, while the customized bank forward matches both exposure terms.
• B. This reverses the counterparty structures: exchange-traded futures are centrally cleared, whereas the bank forward is bilateral.
• C. An expiry on September 17 does not exactly match an exposure continuing through September 18, even though the dates are adjacent.
• D. Whole futures contracts are required, so 12 contracts cover USD1.2 million rather than the full USD1.25 million exposure.

Question 12

Topic: Technical Readiness

A Canadian retail investor is comparing a conventional exchange-listed ETF with an open-end mutual fund holding similar securities. Which statement correctly distinguishes their trading, pricing, and ordinary redemption mechanisms?

• A. ETF units trade on an exchange at market prices; mutual fund orders receive the most recently calculated NAV known when entered; ETF creations and redemptions generally occur in prescribed blocks through designated brokers or dealers.
• B. ETF units trade on an exchange at market prices; mutual fund orders receive the next calculated NAV; retail ETF investors ordinarily create or redeem individual units directly with the fund.
• C. ETF units trade on an exchange at the next calculated NAV; mutual fund orders receive the next calculated NAV; ETF creations and redemptions generally occur in prescribed blocks through designated brokers or dealers.
• D. ETF units trade on an exchange at market prices; mutual fund orders receive the next calculated NAV; ETF creations and redemptions generally occur in prescribed blocks through designated brokers or dealers.

Best answer: D

What this tests: Technical Readiness

Explanation: ETF investors ordinarily buy and sell units with other market participants on an exchange. The execution price reflects current supply and demand and may be above or below the ETF’s NAV. Designated brokers and other institutional dealers can generally create or redeem prescribed blocks of ETF units, helping keep the market price close to NAV.

An open-end mutual fund does not normally trade throughout the day on an exchange. Purchase and redemption orders are processed with the fund, usually through a dealer, using forward pricing. The investor receives the next NAV calculated after the fund receives the order. Consequently, the exact mutual-fund dealing price is not known when the order is submitted.

• A. Open-end mutual funds use forward pricing, so an order receives the NAV calculated after the order is received, not a previously known NAV.
• B. Retail ETF investors ordinarily trade on the exchange rather than using the institutional creation and redemption mechanism directly.
• C. An ETF exchange trade executes at an available market price, which can differ from the ETF’s calculated NAV.
• D. This accurately distinguishes ETF secondary-market execution, mutual-fund forward pricing, and the ETF’s institutional creation and redemption process.

Question 13

Topic: Technical Readiness

A client reviews a principal-at-risk structured product held for exactly one year. The dealer representative makes this claim:

“The product’s 8% headline distribution yield means you earned an 8% total return over the year.”

Account evidence:

• Purchased at issue for $10,000 with no sales charge.
• Received $800 in cash distributions: $500 reported as income and $300 as return of capital.
• Sold after exactly one year for net proceeds of $9,500.
• No distributions were reinvested, and taxes are ignored.

Which assessment of the claim does the evidence support?

• A. The claim is supported as stated; both cash yield and total economic return were 8%.
• B. The claim overstates performance; excluding return of capital makes the total economic return 0%.
• C. The claim is supported only as a statement of cash yield; the total economic return was 3%.
• D. The claim overstates performance; adding return of capital separately makes the total economic return 6%.

Best answer: C

What this tests: Technical Readiness

Explanation: The headline distribution yield measures cash distributed relative to the initial investment: $800 / $10,000 = 8%. Total economic return also includes the change in capital value:

The $500 decline in capital value offsets part of the cash received, leaving an economic gain of $300. The $300 classified as return of capital is already included in the $800 distribution. It must not be excluded from the cash flow or added a second time. Its classification may affect tax reporting and adjusted cost base, but those effects are outside the calculation because taxes are ignored. The 8% figure therefore describes cash yield, not total return.

• A. Treating the distribution yield as total return ignores the decline from $10,000 invested to $9,500 in sale proceeds.
• B. Return of capital remains a cash flow in economic-return measurement, so excluding the $300 produces an understated result.
• C. Cash distributions equal 8% of the initial investment, but the $500 capital decline reduces the economic gain to $300, or 3%.
• D. The $300 return-of-capital amount is already included in the $800 distribution, so adding it again double-counts the same cash.

Question 14

Topic: Technical Readiness

An analyst reviews the following classified statement of financial position excerpt for a Canadian company at December 31. Amounts are in CAD thousands.

Statement excerpt:

What does this record support about the company’s working capital at December 31?

• A. Positive working capital of $180,000.
• B. Positive working capital of $250,000.
• C. Negative working capital of $400,000.
• D. Positive working capital of $340,000.

Best answer: B

What this tests: Technical Readiness

Explanation: Net working capital measures the excess of current assets over current liabilities. The company’s current assets are $180,000 + $70,000 + $260,000 + $340,000 + $50,000 = $900,000. Its current liabilities are $290,000 + $160,000 + $90,000 + $110,000 = $650,000. Therefore, working capital is $900,000 - $650,000 = $250,000.

Property, plant and equipment and the non-current portion of long-term debt are excluded because they are not classified as current. Working capital is a dollar amount, unlike the current ratio, which would be approximately 1.38 based on the same current totals.

• A. The $180,000 amount is cash and cash equivalents, not current assets less current liabilities.
• B. Current assets total $900,000 and current liabilities total $650,000, producing positive working capital of $250,000.
• C. This amount improperly includes the $650,000 non-current portion of long-term debt when calculating current liabilities.
• D. This amount improperly excludes the $90,000 current portion of long-term debt from current liabilities.

Question 15

Topic: Technical Readiness

A manufacturer purchased equipment for $600,000 cash at the beginning of the prior year. The equipment has a five-year useful life, no residual value, and is depreciated straight-line.

Current-year records:

• Income before depreciation: $500,000
• Depreciation expense: $120,000
• Net income: $380,000
• Cash flow from operating activities: $500,000
• No equipment was purchased or sold.
• There were no working capital changes or other non-cash items.
• Income taxes are ignored.

The controller expected operating cash flow to equal net income and cannot find a current-year payment corresponding to the $120,000 depreciation expense. Which explanation resolves this mismatch?

• A. The depreciation represents an unpaid current-year equipment cost, so the expense is recognized before the related cash payment becomes due.
• B. The depreciation represents a current-year equipment purchase classified as investing, so the payment is excluded from operating cash flow.
• C. The depreciation allocates part of the prior-year equipment cost to current income, so it reduces net income without requiring another cash payment.
• D. The depreciation establishes cash for future equipment replacement, so the amount is excluded from net income until that cash is spent.

Best answer: C

What this tests: Technical Readiness

Explanation: Depreciation applies accrual accounting by allocating an asset’s cost over the periods benefiting from its use. The manufacturer paid the entire $600,000 equipment cost in the prior year. With a five-year life and no residual value, annual depreciation is $600,000 / 5 = $120,000.

The $120,000 expense reduces current-year net income from $500,000 to $380,000, but it does not cause a current-year cash outflow. Under the indirect cash flow method, depreciation is therefore added back to net income when calculating operating cash flow. The reconciliation is $380,000 + $120,000 = $500,000. The original equipment purchase affected cash when it occurred and was classified as an investing cash outflow, not a current operating payment.

• A. The equipment was fully purchased for cash in the prior year, so depreciation is not an unpaid acquisition cost.
• B. No equipment was purchased during the current year, and depreciation does not represent a capital expenditure payment.
• C. The equipment’s cash cost was paid in the prior year, while current depreciation is a non-cash allocation of that historical cost.
• D. Recording depreciation does not establish a cash reserve or defer recognition of the expense until replacement occurs.

Question 16

Topic: Technical Readiness

A Canadian client begins the quarter with the following portfolio:

During the quarter, an unexpected Bank of Canada announcement affected the broad equity market. Northstar also announced an accounting restatement specific to its business. The reported returns include distributions and fees, and there were no cash flows or rebalancing transactions.

Which conclusion most accurately distinguishes the risk sources and measures the portfolio’s performance?

• A. The ETF decline and Northstar’s restatement both reflect market risk; the portfolio returned -4.65%, with Northstar contributing -3.00 percentage points.
• B. The ETF decline reflects market risk, while Northstar’s restatement reflects issuer-specific risk; the portfolio returned -4.80%, with Northstar contributing -3.00 percentage points.
• C. The ETF decline reflects market risk, while Northstar’s restatement reflects issuer-specific risk; the portfolio returned -4.65%, with Northstar contributing -15.00 percentage points.
• D. The ETF decline reflects market risk, while Northstar’s restatement reflects issuer-specific risk; the portfolio returned -4.65%, with Northstar contributing -3.00 percentage points.

Best answer: D

What this tests: Technical Readiness

Explanation: Market risk arises from events that broadly affect securities, such as a monetary-policy announcement. Issuer-specific risk arises from circumstances particular to one company, such as Northstar’s accounting restatement. Diversification reduces the portfolio impact of issuer-specific losses but does not eliminate them.

Using beginning weights, the portfolio return is:

Northstar’s -15.0% position return contributes only -3.00 percentage points to the total portfolio return. The equity ETF contributes -1.80 percentage points, while the bond ETF offsets losses by 0.15 percentage points.

• A. An accounting restatement affecting one company is issuer-specific risk, even though the portfolio return and Northstar contribution are calculated correctly.
• B. The -4.80% result omits the bond ETF’s positive 0.15 percentage-point contribution.
• C. The -15.00% figure is Northstar’s position return; its 20% portfolio weight limits its contribution to -3.00 percentage points.
• D. The events have different scopes, and the beginning-weight calculation gives Northstar a -3.00 percentage-point contribution and the portfolio a -4.65% return.

Question 17

Topic: Technical Readiness

A portfolio manager has tactical discretion within the following mandate:

Baseline facts:

• Actual pre-trade weights are 42% Canadian equity, 20% global equity and 38% fixed income.
• Based on a temporary favourable view of global equities, the manager proposes post-trade weights of 35%, 25% and 40%, respectively.

Changed condition: Before trading, the investment policy committee replaces only the strategic targets with 35% Canadian equity, 25% global equity and 40% fixed income. The permitted bands and tactical authority remain unchanged.

How should the manager now classify the proposed allocation?

• A. Treat it as a tactical allocation because global equity is 5 percentage points above its original target despite the revised policy.
• B. Treat it as non-compliant because global equity must be below rather than equal to the band’s 25% upper limit.
• C. Treat it as a tactical allocation because Canadian equity falls 7 percentage points from its actual pre-trade weight despite the revised policy.
• D. Treat it as the strategic allocation because every weight equals its revised target and remains within the unchanged bands.

Best answer: D

What this tests: Technical Readiness

Explanation: Strategic asset allocation is defined by the mandate’s current policy targets. A tactical allocation is a temporary departure from those targets, generally based on a short-term market view and constrained by permitted bands.

Under the original targets, the proposed 35% Canadian equity, 25% global equity and 40% fixed income allocation represented a tactical Canadian equity underweight and global equity overweight. Once the committee revises the strategic targets to those same weights, the proposal no longer deviates from policy. It therefore becomes an implementation of the strategic allocation, even though a temporary market view originally motivated it. The actual pre-trade weights identify the trades needed but do not determine whether the resulting allocation is strategic or tactical.

• A. The original global equity target has been replaced, so the proposed 25% weight must be compared with the revised 25% target.
• B. A permitted band includes its stated boundary, so a 25% global equity weight does not exceed the upper limit.
• C. A tactical tilt is measured against current policy targets, not against the portfolio’s actual pre-trade weights.
• D. The proposed 35%, 25% and 40% weights exactly match the revised policy targets, so they contain no tactical deviation.

Question 18

Topic: Client Readiness

An unregistered client service associate has an initial call with a prospective client. The client has not placed an order, and the assigned registered representative has not yet spoken with the client.

Which action should the registered representative take next?

• A. Meet with the client to explain market-linked GIC features, treat the product mention as direction, then collect remaining KYC after selection.
• B. Ask the associate to confirm the down-payment objective and substantive KYC, then meet with the client to select among suitable GICs.
• C. Meet with the client to confirm the market-linked GIC preference, accept the intake notes as remaining KYC, then compare available GICs.
• D. Meet directly with the client to confirm the down-payment objective and substantive KYC, then assess whether the GIC or alternatives fit.

Best answer: D

What this tests: Client Readiness

Explanation: The client’s desired CAD 60,000 home down payment in three years is the objective. The market-linked GIC is only a proposed means of pursuing that objective. Before evaluating or recommending a solution, the assigned registered representative must speak directly with the client and establish and confirm substantive KYC information, including financial circumstances, risk profile, time horizon and investment needs and objectives. The unregistered associate’s notes can support the process but remain preliminary. Because the client has not placed an order, the representative should not treat the product suggestion as a client-directed trade or narrow the assessment to market-linked GICs.

• A. Mentioning a product is not a client-directed order, and product selection should follow confirmation of the objective and relevant KYC.
• B. The associate may collect preliminary information, but the assigned registered representative must establish and confirm substantive KYC directly.
• C. A product preference does not establish the underlying objective, and preliminary intake notes cannot replace direct KYC confirmation.
• D. Direct confirmation distinguishes the client’s purpose from the proposed product and fulfills the representative’s responsibility for substantive KYC.

Question 19

Topic: Client Readiness

Client discovery note:

• A client is opening a non-registered investment account with $120,000.
• A $40,000 condominium down payment is due in 18 months.
• The client has $10,000 in an immediately accessible savings account reserved for the down payment.
• No additional cash contributions are expected before the purchase.
• Money not required for the purchase is intended for retirement in 20 years.

“I generally invest for the long term and can accept market fluctuations, but the down payment must be available on time.”

What conclusion does this record support about the amount that must remain accessible from the new account and its investment horizon?

• A. Record a $30,000 liquidity need in 18 months; apply a near-term horizon to the full account until the purchase is completed.
• B. Record a $30,000 liquidity need in 18 months; apply a near-term horizon to that amount and the retirement horizon to the balance.
• C. Record no near-term liquidity need; apply the retirement horizon to the full account because the client’s general preference is long term.
• D. Record a $40,000 liquidity need in 18 months; apply a near-term horizon to that amount and the retirement horizon to the balance.

Best answer: B

What this tests: Client Readiness

Explanation: Investment horizon and liquidity needs should be connected to each goal rather than inferred solely from a client’s general investing preference. The condominium purchase creates a fixed liability in 18 months. Because $10,000 is already available in savings, the amount that must be accessible from the new account is:

That $30,000 has a near-term investment horizon and should be assessed with the need for timely access and capacity to withstand loss in mind. The remaining $90,000 is intended for retirement in 20 years and therefore has a separate long-term horizon. Willingness to accept market fluctuations does not change the timing or amount of the down-payment obligation.

• A. The $30,000 shortfall has a near-term horizon, but the record does not support assigning that horizon to assets reserved for retirement.
• B. The accessible savings cover $10,000 of the $40,000 expenditure, leaving $30,000 that the investment account must provide in 18 months.
• C. A general long-term preference does not eliminate the fixed $30,000 shortfall that must be available for the down payment.
• D. This overstates the amount required from the investment account because $10,000 is already accessible and reserved for the purchase.

Question 20

Topic: Client Readiness

A Registered Representative is comparing two products for a client investing $100,000. Both provide exposure to the same balanced portfolio and meet the client’s moderate-growth objective.

Client facts:

• The planned holding period is exactly 10 years, with no expected withdrawals.
• The client has capacity to bear a 20% loss.
• Among suitable products, the client’s priority is the strongest contractual protection of principal at the end of 10 years, even with higher fees and lower net returns.

Product terms:

The segregated fund guarantee is subject to the insurer’s claims-paying ability. Redemption before maturity is at market value. For cost comparison, assume the value used to calculate each MER remains $100,000 annually, and ignore taxes and compounding.

Which comparison best supports a recommendation consistent with the client’s stated priority?

• A. Recommend the segregated fund contract: its estimated 10-year cost is $22,000 versus $6,000, but its $100,000 maturity guarantee matches the client’s priority.
• B. Recommend the mutual fund: its estimated 10-year cost is $6,000 versus $22,000, and the lower cost should govern because both products hold the same portfolio.
• C. Recommend the mutual fund: its estimated 10-year cost is $6,000 versus $22,000, and the client’s loss capacity makes its downside protection equivalent over the holding period.
• D. Recommend the segregated fund contract: its estimated 10-year cost is $22,000 versus $6,000, and its $100,000 guarantee protects the client throughout the entire term.

Best answer: A

What this tests: Client Readiness

Explanation: The costs must be compared over the same 10-year period. Under the stated assumption, the mutual fund’s estimated cost is 0.60% x $100,000 x 10 = $6,000. The segregated fund contract’s estimated cost is 2.20% x $100,000 x 10 = $22,000.

The mutual fund is less expensive, but cost is not the client’s overriding priority. The segregated fund contract guarantees the $100,000 deposit at the specified 10-year maturity, subject to the insurer’s claims-paying ability. That protection applies at maturity, not throughout the term; an early redemption occurs at market value.

The client’s ability to bear a 20% loss helps establish that both products may be suitable, but it does not eliminate the relevance of the client’s preference for contractual protection. Product selection should reflect the stated priority after comparing fees and downside on the same holding-period basis.

• A. The higher-cost contract provides the contractual maturity protection the client identified as more important than minimizing fees.
• B. Identical underlying holdings do not make the downside terms identical, and lowest cost is not the client’s deciding priority.
• C. Capacity to bear loss does not create contractual protection or override the client’s stated preference for a maturity guarantee.
• D. The guarantee applies at the specified maturity date, while an earlier redemption receives market value and can produce a loss.

Question 21

Topic: Client Readiness

Baseline (all amounts CAD):

• A client’s TFSA is worth $140,000 and supports a long-term growth objective.
• The client had stable employment, six months of emergency savings, and medium-high risk capacity and tolerance.
• A diversified growth-oriented allocation was suitable at the last review.

Changed condition: The client is laid off, receives no severance, and must withdraw $25,000 from the TFSA over the next nine months for essential expenses. The client’s willingness to accept risk has not changed, but there are no other liquid assets available.

Which corrective step is most appropriate for the Registered Representative?

• A. Update the KYC information immediately, reassess the full account, and recommend moving about $25,000 to liquid, low-volatility holdings while reviewing the remaining allocation.
• B. Update the KYC information immediately, reassess the full account, and recommend moving the entire TFSA to cash until the client obtains comparable employment.
• C. Update the KYC information immediately, reassess the full account, and recommend retaining the current allocation while selling units periodically to fund the planned withdrawals.
• D. Maintain the current KYC information until the next scheduled review, redeem about $25,000 now, and recommend keeping the balance in the existing allocation.

Best answer: A

What this tests: Client Readiness

Explanation: Job loss and a fixed need for portfolio withdrawals materially affect liquidity requirements and capacity to bear loss, even when the client’s willingness to take risk remains unchanged. The Registered Representative should promptly update the client’s KYC information and reassess the suitability of the entire account.

The $25,000 needed within nine months should generally be protected from significant short-term market volatility through an appropriate liquid allocation. However, changed circumstances do not automatically require liquidation of every holding. The remaining assets may still serve longer-term objectives, but their suitability must be reconsidered using the client’s revised financial circumstances, time horizons, liquidity needs, and risk capacity. Any recommendation and resulting client instructions should be documented according to firm procedures.

• A. This addresses the new liquidity need and reduced risk capacity while preserving an individualized suitability review of the remaining assets.
• B. The employment change requires reassessment, but it does not automatically make every existing investment unsuitable or require complete liquidation.
• C. Keeping the fixed near-term withdrawal amount exposed to market fluctuations does not adequately address the client’s reduced capacity and urgent liquidity need.
• D. A material employment and liquidity change requires a prompt KYC update and reassessment rather than waiting for the scheduled review.

Question 22

Topic: Client Readiness

A client enrolled in an issuer’s dividend reinvestment plan (DRIP) before the dividend record date.

Corporate-action terms:

• Record date: June 15, 2026
• Payable date: June 30, 2026
• Dividend: $0.35 per share
• DRIP purchase price: $24.00 per share
• Only whole shares are issued; any residual is paid in cash

Account records:

• June 15 closing balance: 350 shares and $80.00 cash
• June 22 deposit: $50.00 cash
• June 30 balance after the dividend posting: 355 shares and $132.50 cash
• No fees, withholding, trades, or other entries occurred

The dealer representative states:

“The dividend was correctly processed as five additional shares and $2.50 residual cash.”

Which assessment of the representative’s claim is supported by the records?

• A. The claim is fully supported because the dividend bought five shares and left $2.50 cash, producing the recorded share and cash balances.
• B. The claim is partly supported because the dividend should use the 355-share ending balance, producing $4.25 residual cash and $134.25 total cash.
• C. The claim is not supported because the dividend should remain in cash, producing 350 shares and an ending cash balance of $252.50.
• D. The claim is not supported because the deposit should join the dividend for reinvestment, producing seven new shares and an ending cash balance of $84.50.

Best answer: A

What this tests: Client Readiness

Explanation: The dividend entitlement is based on the 350 shares held on the June 15 record date. The dividend is therefore 350 x $0.35 = $122.50. Under the DRIP terms, five whole shares are purchased for 5 x $24.00 = $120.00, leaving $2.50 to be credited as cash.

The share balance becomes 350 + 5 = 355 shares. The cash balance becomes $80.00 + $50.00 deposit + $2.50 residual = $132.50. Both ending balances reconcile exactly with the account records. The increase in shares and the absence of a $122.50 cash credit are expected consequences of the DRIP, not processing errors.

• A. The $122.50 dividend purchased five shares for $120.00, while the $2.50 residual and $50.00 deposit increased cash to $132.50.
• B. Dividend entitlement is based on the 350 shares held on the record date, not the shares held after reinvestment.
• C. The client’s DRIP enrollment requires reinvestment under the stated terms rather than payment of the entire dividend in cash.
• D. The DRIP applies to the declared dividend, while the separate $50.00 deposit remains part of the account’s cash balance.

Question 23

Topic: Client Readiness

Maya is a self-employed consultant whose monthly income varies significantly and can remain low for several months.

Financial profile:

• Essential recurring expenses are $4,000 per month.
• She has $7,000 in an unrestricted high-interest savings account.
• Her TFSA holds $20,000 in an equity ETF designated for retirement.
• She has an unused $30,000 home equity line of credit.
• She has received a $25,000 after-tax bonus and has no other near-term cash needs.
• After establishing an emergency reserve, she has the capacity, willingness and 15-year horizon to accept equity volatility.

Maya has agreed to maintain six months of essential expenses in stable, immediately accessible resources before investing surplus cash in volatile assets. Which allocation of the bonus is most appropriate?

• A. Allocate $4,000 to savings and $21,000 to the equity ETF, adding one month of expenses to the existing reserve.
• B. Allocate $17,000 to savings and $8,000 to the equity ETF, bringing the stable emergency reserve to $24,000.
• C. Allocate $24,000 to savings and $1,000 to the equity ETF, establishing the full six-month target from the bonus.
• D. Allocate $25,000 to the equity ETF and rely on the savings, TFSA holdings and line of credit for emergencies.

Best answer: B

What this tests: Client Readiness

Explanation: Maya’s emergency-liquidity target is six months of essential expenses:

Her existing $7,000 high-interest savings balance is stable, unrestricted and immediately accessible, so the additional amount required is $17,000. The remaining $8,000 can support her long-term investment goal because the facts establish an appropriate horizon and capacity for volatility after the reserve is funded.

Although the TFSA ETF can be sold, its value may decline when cash is needed, and selling it would disrupt the retirement allocation. The home equity line of credit provides borrowing capacity rather than owned emergency savings and may create interest costs. Emergency resources should therefore be separated from long-term volatile investments and credit facilities.

• A. Total stable savings would be only $11,000, leaving Maya $13,000 short of the agreed six-month emergency reserve.
• B. Six months of expenses equals $24,000; after counting the existing $7,000 savings balance, the reserve shortfall is $17,000.
• C. This ignores the existing $7,000 stable savings balance and therefore creates a reserve exceeding Maya’s agreed six-month requirement.
• D. The retirement ETF is volatile and the line of credit is borrowed money, so neither replaces the required stable emergency reserve.

Question 24

Topic: Client Readiness

Nadia, a registered representative who is not licensed to advise on insurance, meets with a client who provides these facts:

• Her will includes a $250,000 charitable bequest. She is considering life insurance payable to her estate to support that bequest, with quoted premiums of $18,000 at each year-end for five years.
• Her $160,000 non-registered portfolio is the only source for the premiums and her required $30,000 emergency reserve.
• She wants to invest the entire portfolio in a five-year non-redeemable GIC that permits no interim withdrawals.

Which is Nadia’s most appropriate next action?

• A. Set aside $120,000 in cash and invest $40,000 in the GIC while the insurance professional and estate lawyer conduct separate reviews.
• B. Purchase the GIC for the full portfolio, then ask the insurance professional about using policy values for premiums and the lawyer about the bequest.
• C. Prepare an integrated cash-flow analysis of premiums, emergency liquidity, and investable funds, then coordinate insurance and legal reviews before implementation.
• D. Construct the portfolio from risk tolerance and return objectives, then ask the insurance professional and lawyer to adapt their plans to its cash flow.

Best answer: C

What this tests: Client Readiness

Explanation: The decisions are interdependent. Five premiums total $90,000, and the client also requires a $30,000 emergency reserve. Locking the full $160,000 in a non-redeemable GIC would leave these known needs without an accessible funding source.

An integrated analysis should examine the timing of premiums, emergency access, and the amount available for longer-term investment. Any projection should identify assumptions about returns, fees, taxes, and cash-flow timing rather than automatically treating $120,000 as the required cash allocation. Because Nadia is not insurance-licensed and interpreting the will involves legal expertise, she should coordinate with an insurance professional and an estate lawyer. Implementation should follow confirmation that the policy terms, beneficiary arrangement, estate objective, and investment strategy work together.

• A. This prematurely implements fixed amounts using a simple total that ignores premium timing, investment assumptions, and coordination between the specialist reviews.
• B. The GIC would make the portfolio inaccessible, and the stated policy arrangement does not establish that policy values can fund the premiums.
• C. The insurance premiums, emergency reserve, investment liquidity, and estate objective must be assessed together before assets are committed.
• D. Making the insurance and estate arrangements conform to a preselected portfolio disregards the client’s known liquidity needs and coordinated planning objective.

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