CSC Exam 1 — CSI Canadian Securities Course (CSC) Cheat Sheet

Last revised: September 28, 2026

Cheat sheet: CSC Exam 1 reference for Canadian markets, economics, fixed income, equities, derivatives, financial statements, and securities analysis.

Use the tables for a quick pre-exam check. Expand a topic’s notes for explanations, examples, and additional distinctions.

Scope and study context

Memorize core relationships: bond price/yield, yield curve signals, equity ratios, option payoffs.
Drill decision points: monetary vs fiscal policy, primary vs secondary markets, common vs preferred shares, call vs put, clean vs dirty bond price.
Practise calculations: accrued interest, current yield, EPS, P/E, dividend yield, working capital, debt ratios.
Watch wording traps: investor protection does not mean protection from market loss; higher coupon does not always mean higher yield; “yield” can mean several different things.

This page is an independent review aid for candidates preparing for the Canadian Securities Institute CSI Canadian Securities Course (CSC), CSC Exam 1. It is designed for fast consolidation before you move into topic drills, mock exams, and detailed explanations.

Scan the high-yield map to identify weak areas.
Review each concept table until you can explain the distinctions without notes.
Do original practice questions by topic, not just full mock exams.
Review detailed explanations for every missed or guessed question.
Return to this page to tighten decision rules and common traps.

Your current Canadian Securities Institute materials remain the authority for the exact examinable scope. This page is independent companion practice support, not an official course outline.

High-Yield Topic Map

Area	Must Know	Common Exam Trap
Canadian marketplace	Capital markets, money markets, primary vs secondary markets, dealer roles, exchanges, OTC	Confusing issuer proceeds in the primary market with investor-to-investor trading in the secondary market
Regulation and investor protection	Provincial/territorial regulation, CSA coordination, CIRO, CIPF, CDIC	CIPF/CDIC protect against insolvency-type risks, not normal market losses
Economy	GDP, inflation, unemployment, business cycle, monetary/fiscal policy, yield curve	Assuming all rising rates are bad for every investor; effects depend on asset class and time horizon
Fixed income	Coupon, maturity, yield, price, duration concept, credit quality, secured vs unsecured debt	Bond prices and yields move inversely
Equity	Common vs preferred shares, dividends, voting, residual claim, rights, warrants	Preferred shares are equity, not debt, even when they have fixed dividends
Derivatives	Calls, puts, forwards, futures, options, hedging vs speculation	Option buyer has rights; option writer has obligations
Financial statements	Balance sheet, income statement, cash flow, ratios	Net income is not the same as cash flow
Securities analysis	Fundamental, technical, top-down, bottom-up, risk-return trade-off	High return potential normally comes with higher risk, not lower risk

Canadian Securities Market Structure

Key Organizations and Roles

Organization / Term	Core Role	Exam-Relevant Distinction
Canadian Securities Administrators (CSA)	Umbrella group of provincial and territorial securities regulators	Coordinates regulation; Canada does not have a single national securities regulator in the same way some countries do
Provincial/territorial securities commissions	Administer securities laws in their jurisdictions	Registration, prospectus review, enforcement, disclosure requirements
Canadian Investment Regulatory Organization (CIRO)	Self-regulatory organization for investment dealers and mutual fund dealers	Oversees dealer conduct and market integrity rules within its mandate
Canadian Investor Protection Fund (CIPF)	Protects eligible client property if a member firm becomes insolvent	Does not protect against investment losses from market decline
Canada Deposit Insurance Corporation (CDIC)	Protects eligible deposits at member institutions	Does not cover stocks, bonds, mutual funds, or normal investment losses
Bank of Canada	Central bank; monetary policy, financial system stability, currency issuance	Influences short-term interest rates; not a securities dealer regulator
OSFI	Prudential regulator for federally regulated financial institutions	Focuses on safety and soundness of banks, insurers, pension plans under federal mandate
Exchanges	Central marketplaces for listed securities	Provide listing standards, transparency, and auction/continuous trading mechanisms
OTC market	Dealer network for securities not traded on an exchange or for many debt instruments	Less centralized than exchange trading

Notes and examples

Market Types

Market	Meaning	Examples	Exam Angle
Money market	Short-term debt market	T-bills, commercial paper, bankers’ acceptances	Liquidity and safety are usually emphasized over high return
Capital market	Long-term financing market	Bonds, debentures, preferred shares, common shares	Used for long-term capital raising and investment
Primary market	New securities are issued	IPO, treasury offering, new bond issue	Issuer receives proceeds, less issue costs
Secondary market	Existing securities trade among investors	Exchange trading, OTC bond trading	Issuer usually does not receive proceeds
Auction market	Buyers and sellers meet through a central system	Listed equities	Transparent bid/ask and price discovery
Dealer market	Dealers quote bid and ask prices	Many bonds, money market instruments	Dealer earns spread and may trade as principal

Primary Market and New Issues

Term	Meaning	Candidate Cue
Issuer	Entity raising capital by selling securities	Corporation, government, municipality, financial institution
Treasury offering	New securities issued by the company	Proceeds go to the issuer
Secondary offering	Existing shareholder sells previously issued securities	Proceeds go to selling shareholder, not issuer
IPO	First public offering of shares	Converts private ownership to public market access
Prospectus	Disclosure document for public distribution	Provides material facts; not a guarantee of success
Preliminary prospectus	Initial prospectus filed for review	Often associated with the waiting period
Final prospectus	Cleared version used for sale	Contains final offering details
Underwriting	Dealer or syndicate helps distribute securities	Can involve bought deal or best efforts
Bought deal	Dealer buys issue from issuer and resells	Issuer has financing certainty; dealer takes inventory risk
Best efforts	Dealer attempts to sell, without full purchase commitment	Issuer bears more distribution risk
Private placement	Exempt distribution to qualifying investors	Less public disclosure than prospectus offering
Rights offering	Existing shareholders receive rights to buy additional shares	Helps reduce dilution concerns for existing holders

Economy and Policy Reference

Core Macroeconomic Relationships

\[ GDP = C + I + G + (X - M) \]

Where \(C\) = consumption, \(I\) = investment, \(G\) = government spending, \(X\) = exports, and \(M\) = imports.

\[ \text{Approximate real return} \approx \text{nominal return} - \text{inflation rate} \]\[ \text{Real return} = \frac{1 + \text{nominal return}}{1 + \text{inflation rate}} - 1 \]

Economic Indicators

Indicator	What It Measures	Typical Market Interpretation
GDP growth	Total economic output	Strong growth can support earnings but may raise inflation/rate concerns
Inflation	General price level increases	Erodes purchasing power; may lead to tighter monetary policy
Unemployment	Labour market slack	High unemployment may signal weak demand; very low unemployment may signal wage pressure
Consumer confidence	Household willingness to spend	Higher confidence can support consumption-sensitive sectors
Business investment	Corporate confidence and capacity expansion	Often cyclical; supports productivity and future growth
Housing activity	Construction, resale, mortgage demand	Sensitive to interest rates
Exchange rate	Value of Canadian dollar vs other currencies	Strong CAD may pressure exporters; weak CAD may raise import costs

Business Cycle

Phase	Economic Conditions	Common Asset/Policy Effects
Expansion	Rising output, employment, income	Equities may benefit; inflation pressure can build
Peak	Growth slows after strong expansion	Central bank may be restrictive if inflation is high
Contraction / recession	Falling or weak output, higher unemployment	Defensive sectors and high-quality bonds may be favoured
Trough	Economy stabilizes before recovery	Interest rates may already be lower; cyclicals may recover early

Monetary vs Fiscal Policy

Policy Type	Controlled By	Tools	Main Transmission
Monetary policy	Bank of Canada	Policy interest rate, liquidity operations, guidance	Affects borrowing costs, credit, inflation expectations, exchange rates
Fiscal policy	Federal/provincial governments	Spending, taxation, transfers, deficits/surpluses	Affects aggregate demand and public borrowing

Interest Rate and Yield Curve Signals

Yield Curve Shape	Description	Typical Interpretation
Normal / upward sloping	Long rates above short rates	Markets expect growth/inflation premium or normal term premium
Flat	Short and long rates similar	Uncertainty or transition point in cycle
Inverted	Short rates above long rates	Often associated with restrictive policy and recession risk
Steepening	Long rates rise vs short rates or short rates fall faster	Growth/inflation expectations may be increasing, or policy easing may be expected
Flattening	Long rates fall vs short rates or short rates rise faster	Slowing growth expectations or policy tightening

Notes and examples

Yield Curve Shapes

Yield Curve Shape	Description	Common Interpretation
Normal / upward sloping	Long-term yields above short-term yields	Growth and inflation expectations, term premium
Flat	Short and long yields similar	Transition or uncertainty
Inverted	Short-term yields above long-term yields	Potential slowdown expectations, restrictive policy conditions
Steep	Large gap between long and short yields	Stronger growth/inflation expectations or aggressive easing at short end

Interest Rate Decision Rules

Rates rise → existing bond prices fall.
Rates fall → existing bond prices rise.
Longer maturity → more price sensitivity.
Lower coupon → more price sensitivity.
Higher credit risk → higher required yield/spread.
Callable bonds favour the issuer when rates fall.
Reinvestment risk rises when coupons must be reinvested at lower rates.

Total Return

\[ \text{Total return} = \frac{\text{income received} + (\text{ending price} - \text{beginning price})}{\text{beginning price}} \]

Total return includes both income and capital gain or loss. Do not analyze income yield alone when the question asks about total performance.

Fixed Income Cheat Sheet

Bond Building Blocks

Feature	Meaning	Exam Cue
Par / face value	Amount repaid at maturity	Often quoted as 100 or 1,000 conceptually
Coupon rate	Annual interest as percentage of par	Coupon is based on par, not market price
Coupon payment	Periodic interest payment	Semi-annual is common for many bonds
Maturity	Date principal is repaid	Longer maturities usually have greater interest rate sensitivity
Market price	Current trading price	Moves inversely with yield
Current yield	Annual coupon divided by market price	Ignores capital gain/loss to maturity
Yield to maturity	Total return if held to maturity, assuming payments and reinvestment assumptions	Better measure than current yield, but still assumption-based
Yield to call	Yield if bond is called early	Important for callable bonds bought at a premium
Clean price	Quoted bond price excluding accrued interest	Common quote convention
Dirty / full price	Clean price plus accrued interest	Actual amount buyer pays
Accrued interest	Interest earned since last coupon date	Buyer pays seller accrued interest at settlement

Notes and examples

Bond Price and Yield Rules

If This Happens	Bond Price Effect	Why
Market yields rise	Existing bond prices fall	Old coupons are less attractive
Market yields fall	Existing bond prices rise	Old coupons are more attractive
Coupon rate > market yield	Bond trades at premium	Coupon is above market requirement
Coupon rate < market yield	Bond trades at discount	Coupon is below market requirement
Coupon rate = market yield	Bond trades near par	Coupon matches required yield
Longer maturity	Greater price sensitivity	Cash flows are received farther in the future
Lower coupon	Greater price sensitivity	More value comes from distant principal repayment
Higher credit risk	Higher required yield	Investors demand risk premium

Core Fixed Income Formulas

\[ \text{Current yield} = \frac{\text{annual coupon interest}}{\text{market price}} \]\[ \text{Accrued interest} = \text{coupon payment} \times \frac{\text{days since last coupon}}{\text{days in coupon period}} \]\[ \text{Full price} = \text{quoted clean price} + \text{accrued interest} \]

Approximate yield to maturity:

\[ \text{Approx. YTM} = \frac{\text{annual coupon} + \frac{\text{par value} - \text{price}}{\text{years to maturity}}} {\frac{\text{par value} + \text{price}}{2}} \]

Approximate bond price change using duration concept:

\[ \%\Delta P \approx -D \times \Delta y \]

Where \(D\) is duration and \(\Delta y\) is the change in yield. The negative sign reflects the inverse price/yield relationship.

Fixed Income Instruments

Instrument	Issuer / Backing	Key Characteristics	Exam Distinction
Treasury bill	Federal government short-term debt	Sold at discount, matures at face value	No coupon; return comes from discount
Government of Canada bond	Federal government	High credit quality, benchmark yields	Lower credit risk than most corporate debt
Provincial bond	Province	Usually higher yield than federal bonds	Credit risk varies by province
Municipal bond	Municipality	Used for local infrastructure and services	Credit quality depends on municipality
Corporate bond	Corporation	Coupon-paying debt	Higher credit risk than comparable government debt
Debenture	Unsecured corporate debt	Backed by general credit of issuer	No specific collateral
Mortgage bond	Secured by mortgage assets	Debt secured by real property loans	Collateral matters
Collateral trust bond	Secured by financial assets	Backed by pledged securities	Security is financial collateral
Equipment trust certificate	Secured by equipment	Often linked to transportation equipment	Collateral has resale value
Strip bond	Coupon and principal separated	Bought at discount, no periodic coupon	Interest accrues economically; tax treatment can be tested conceptually
Convertible bond	Bond convertible into common shares	Hybrid debt/equity feature	Conversion option benefits holder
Callable bond	Issuer can redeem before maturity	Reinvestment risk for investor	Likely called when rates fall
Put bond	Holder can demand early repayment	Benefits investor	Valuable when rates rise or credit weakens
Floating-rate note	Coupon resets with benchmark	Lower interest rate sensitivity	Income varies with rates

Bond Quality and Risk

Risk	Meaning	Most Relevant To
Interest rate risk	Price falls when rates rise	Long-term fixed-rate bonds
Reinvestment risk	Future coupon income reinvested at lower rates	Callable bonds and high-coupon bonds
Credit / default risk	Issuer may fail to pay	Corporate and lower-quality issuers
Liquidity risk	Hard to sell quickly at fair price	Thinly traded issues
Inflation risk	Fixed payments lose purchasing power	Long-term fixed-income investors
Call risk	Bond redeemed before maturity	Callable premium bonds
Currency risk	Foreign-currency payments fluctuate in CAD terms	Foreign bonds or global portfolios

Bond Terminology

Term	Meaning	Exam Focus
Par / face value	Amount repaid at maturity	Often quoted as 100 or par
Coupon rate	Annual interest rate based on par	Does not change when market price changes
Coupon payment	Dollar interest paid	Coupon rate times par value
Maturity date	Date principal is due	Longer maturity usually means more interest-rate risk
Market price	Current trading price	Moves inversely with market yields
Current yield	Annual coupon interest / market price	Ignores maturity gain/loss
Yield to maturity	Return if held to maturity, assuming payments as modeled	More complete than current yield
Accrued interest	Interest earned since last coupon date	Buyer pays seller accrued interest on settlement
Clean price	Quoted bond price excluding accrued interest	Common quotation convention
Dirty price	Price including accrued interest	Actual cash paid includes accrued interest
Callable	Issuer can redeem early	Bad for investor when rates fall
Convertible	Can be converted into shares	Adds equity upside potential
Sinking fund	Scheduled retirement of debt	Can reduce default risk
Covenant	Contractual promise/restriction	Protects lender interests

Coupon, Price, and Yield Relationship

Situation	Bond Price	Why
Coupon rate = market yield	At par	Coupon matches required return
Coupon rate > market yield	Premium	Bond pays more income than market requires
Coupon rate < market yield	Discount	Bond pays less income than market requires

Current yield formula:

Fixed-Income Instruments

Instrument	Typical Features	Key Risk / Trap
Treasury bill	Short-term government money market instrument, sold at discount	Return comes from discount, not coupon
Government bond	Issued by federal/provincial/municipal entities	Interest-rate risk still exists
Corporate bond	Issued by corporations	Credit risk and spread risk matter
Debenture	Unsecured debt backed by general credit of issuer	Not secured by specific assets
Mortgage-backed security	Backed by mortgage cash flows	Prepayment and interest-rate behaviour matter
Strip bond	Coupon and principal separated, sold at discount	No periodic coupon; price can be rate-sensitive
Bankers’ acceptance	Short-term corporate financing backed by bank acceptance	Money market credit/liquidity focus
Commercial paper	Short-term unsecured corporate debt	Issuer credit quality is central
GIC / term deposit	Deposit-style instrument	Liquidity and insurance eligibility depend on terms and issuer

Bond Risk Review

Risk	What It Means	Most Tested Angle
Interest-rate risk	Price changes when rates change	Longer maturity/lower coupon = more sensitivity
Reinvestment risk	Coupons reinvested at lower rates	High coupon bonds have more cash flow to reinvest
Credit/default risk	Issuer may fail to pay	Higher-risk issuers must offer higher yields
Inflation risk	Purchasing power declines	Fixed payments hurt when inflation rises
Liquidity risk	Hard to sell quickly at fair price	Wider spreads and price concessions
Call risk	Issuer redeems early	Investor loses attractive coupon when rates fall
Currency risk	Foreign security value changes with exchange rates	CAD return differs from local return
Event risk	Corporate/legal/economic event changes credit quality	Can rapidly alter spreads

Accrued Interest Trap

If a bond is sold between coupon dates:

The seller has earned interest from the last coupon date to settlement.
The buyer pays the seller accrued interest.
The buyer receives the full next coupon from the issuer.

The buyer is not “overpaying”; the accrued interest compensates the seller for interest earned before the sale.

Fixed-Income Question Strategy

When a bond question feels complicated, identify these in order:

Coupon rate
Market yield / required yield
Maturity
Price relative to par
Special features such as call, convertibility, sinking fund
Main risk being tested

Then apply the core rule: price and yield move in opposite directions.

Equity Securities

Common vs Preferred Shares

Feature	Common Shares	Preferred Shares
Legal nature	Equity ownership	Equity ownership with preference features
Voting rights	Usually voting	Usually limited or no voting unless special conditions occur
Dividend	Variable, not guaranteed	Usually fixed or formula-based, not guaranteed
Claim on assets	Residual claim after creditors and preferred shareholders	Ahead of common, behind debt
Upside potential	High, tied to company growth	Usually more limited
Risk	Higher	Usually lower than common but higher than debt
Income stability	Lower	Higher, if dividends are maintained
Main investor appeal	Growth and voting control	Income and priority over common dividends

Notes and examples

Type	Key Feature	Exam Cue
Cumulative preferred	Missed dividends accumulate	Arrears must normally be paid before common dividends
Non-cumulative preferred	Missed dividends do not accumulate	More risk for preferred shareholder
Participating preferred	May share in additional earnings	Potential upside beyond fixed dividend
Convertible preferred	Can convert into common shares	Hybrid income/growth feature
Callable / redeemable preferred	Issuer can redeem	Investor faces call/reinvestment risk
Retractable preferred	Holder can require issuer redemption	Holder has added protection
Floating-rate preferred	Dividend adjusts with rate benchmark	Less sensitive to rate changes than fixed-rate preferred
Rate-reset preferred	Dividend resets at scheduled intervals	Sensitive to reset spread and rate outlook

Equity Formulas

\[ \text{EPS} = \frac{\text{net income} - \text{preferred dividends}}{\text{weighted average common shares outstanding}} \]\[ \text{P/E ratio} = \frac{\text{market price per share}}{\text{earnings per share}} \]\[ \text{Dividend yield} = \frac{\text{annual dividend per share}}{\text{market price per share}} \]\[ \text{Dividend payout ratio} = \frac{\text{dividends}}{\text{net income}} \]\[ \text{Book value per common share} = \frac{\text{common shareholders' equity}}{\text{common shares outstanding}} \]

Rights and Warrants

Feature	Rights	Warrants
Issued to	Existing shareholders	Often attached to new securities or issued separately
Purpose	Let shareholders buy more shares, often to maintain proportionate ownership	Sweetener or long-term option to buy shares
Life	Short-term	Longer-term
Exercise price	Often below current market at issue	Often above current market at issue
Dilution effect	New shares issued if exercised	New shares issued if exercised
Exam trap	Rights are not the same as dividends	Warrants are not the same as listed call options, though payoff logic is similar

Common vs Preferred Shares

Feature	Common Shares	Preferred Shares
Ownership	Residual ownership interest	Equity security with preference features
Voting rights	Usually voting	Often limited or no voting
Dividends	Variable, not guaranteed	Usually fixed or formula-based
Claim on assets	Last after creditors and preferred shareholders	Ahead of common, behind debt
Upside potential	High	Usually more limited
Income stability	Lower	Higher than common, but not guaranteed
Main investor appeal	Growth and participation	Income and priority over common

Type	Feature	Exam Trap
Cumulative	Missed dividends accumulate before common dividends resume	More protective than non-cumulative
Non-cumulative	Missed dividends do not accumulate	Investor may permanently lose skipped dividends
Participating	May share in additional profits	Not the same as common share voting power
Convertible	Can convert into common shares	Value affected by common share price
Callable / redeemable	Issuer can redeem	Favourable to issuer when financing costs fall
Retractable	Holder can require redemption under terms	More investor-friendly than callable
Floating-rate / rate-reset	Dividend rate adjusts by formula	Rate risk differs from fixed-rate preferreds

Equity Valuation and Income Ratios

Measure	Plain Formula	What It Tells You
EPS	Earnings available to common shareholders / average common shares	Profit per common share
P/E ratio	Market price per share / EPS	How much investors pay for each dollar of earnings
Dividend yield	Annual dividend per share / market price per share	Cash income relative to price
Dividend payout ratio	Dividends per share / EPS	Portion of earnings paid out
Book value per share	Common shareholders’ equity / common shares outstanding	Accounting equity per share
ROE	Net income / shareholders’ equity	Profitability relative to equity capital

Equity Style and Sector Concepts

Category	Characteristics	Watch For
Growth stock	Expected above-average earnings growth	High valuation may already price in optimism
Value stock	Lower valuation relative to fundamentals	May be cheap for a reason
Income stock	Emphasis on dividends	Dividend sustainability matters
Cyclical stock	Sensitive to business cycle	Performs poorly in downturns
Defensive stock	Demand relatively stable	May lag in strong bull markets
Speculative stock	High uncertainty, high potential reward/loss	Suitability and risk tolerance are central

Trading Terms

Term	Meaning	Exam Trap
Bid	Price buyer is willing to pay	Investor selling typically receives bid
Ask / offer	Price seller is willing to accept	Investor buying typically pays ask
Spread	Difference between bid and ask	Wider spread means higher trading cost/liquidity risk
Market order	Execute promptly at best available price	Price not guaranteed
Limit order	Execute only at specified price or better	Execution not guaranteed
Stop order	Becomes active when stop price is reached	Final execution price may differ in fast markets
Short sale	Sale of borrowed security	Loss potential can be large if price rises

Equity Traps

Dividends are not guaranteed, even for preferred shares.
Common shareholders are residual claimants.
A high dividend yield can reflect a falling share price, not necessarily strength.
P/E ratio is not meaningful when earnings are negative.
Voting control and economic ownership may differ if share classes exist.
Book value is accounting-based; market value reflects investor expectations.

Equity Trading and Orders

Term / Order	Meaning	Best Used When	Trap
Bid	Highest price buyer is willing to pay	Selling reference	Investor sells at bid, not ask
Ask / offer	Lowest price seller is willing to accept	Buying reference	Investor buys at ask
Spread	Ask minus bid	Liquidity indicator	Wide spread increases trading cost
Market order	Execute immediately at best available price	Speed matters more than price certainty	Execution price may differ from last quote
Limit order	Buy/sell only at limit price or better	Price control matters	May not execute
Stop order	Becomes market order after stop price reached	Loss control or breakout entry	Execution price not guaranteed
Stop-limit order	Becomes limit order after stop price reached	More price control after trigger	May not execute after trigger
Day order	Expires if not filled that day	Short-term instruction	Must be re-entered if still desired
Good-till-cancelled	Remains open until cancelled or expiry rules apply	Longer-term instruction	Candidate should not assume it lasts forever without platform rules
Short sale	Sale of borrowed security	Profit from price decline or hedge	Loss potential can be large if price rises
Margin purchase	Borrowing to buy securities	Leverage returns	Magnifies gains and losses

Derivatives Reference

Derivative Types

Instrument	Contract Nature	Main Use	Exam Distinction
Forward	Customized OTC agreement to buy/sell later	Hedging or customized exposure	Counterparty risk; not standardized
Future	Standardized exchange-traded forward-style contract	Hedging or speculation	Mark-to-market and exchange clearing
Call option	Right to buy underlying asset	Bullish exposure or hedging short exposure	Buyer has right, not obligation
Put option	Right to sell underlying asset	Bearish exposure or portfolio protection	Buyer has right, not obligation
Warrant	Issuer-created right to buy shares	Financing sweetener or leveraged equity exposure	Exercise creates new shares
Right	Short-term right for existing shareholders	Maintain ownership in new issue	Usually shorter life than warrant

Notes and examples

Option Payoff Logic

Position	Market View	Maximum Loss	Profit Driver
Long call	Bullish	Premium paid	Underlying price rises above strike plus premium
Short call	Neutral to bearish	Potentially unlimited	Option expires or falls in value
Long put	Bearish / protective	Premium paid	Underlying price falls below strike minus premium
Short put	Neutral to bullish	Large if underlying falls significantly	Option expires or falls in value
Covered call	Neutral to moderately bullish	Stock downside less premium received	Earn premium; may cap upside
Protective put	Bullish but risk-controlled	Premium plus stock downside to protected level	Limits downside below strike

Option Value Terms

Term	Meaning	Call Option	Put Option
Strike / exercise price	Price at which underlying may be bought/sold	Buy at strike	Sell at strike
Premium	Price of the option	Paid by buyer, received by writer	Paid by buyer, received by writer
Intrinsic value	Value if exercised now	Max(0, market price - strike)	Max(0, strike - market price)
Time value	Premium minus intrinsic value	Reflects time, volatility, rates, dividends	Reflects time, volatility, rates, dividends
In the money	Positive intrinsic value	Market price > strike	Market price < strike
At the money	Market near strike	Market approximately strike	Market approximately strike
Out of the money	No intrinsic value	Market price < strike	Market price > strike

Options: Calls and Puts

Option	Buyer Has Right To	Writer Has Obligation To	Buyer Wants
Call	Buy the underlying at strike price	Sell the underlying if exercised	Price to rise
Put	Sell the underlying at strike price	Buy the underlying if exercised	Price to fall

Option Buyer vs Writer

Position	Maximum Loss	Potential Gain	Obligation?
Long call	Premium paid	Large if underlying rises	No
Short call	Potentially large	Premium received	Yes
Long put	Premium paid	Large if underlying falls, limited by underlying approaching zero	No
Short put	Large if underlying falls	Premium received	Yes

Intrinsic Value

Option	Intrinsic Value
Call	max(0, underlying price - strike price)
Put	max(0, strike price - underlying price)

Option premium has two main components:

Intrinsic value
Time value

Time value declines as expiry approaches, all else equal.

Break-Even Rules for Basic Long Options

Position	Break-Even
Long call	Strike price + premium
Long put	Strike price - premium

Hedging Examples

Strategy	Purpose	Basic Logic
Protective put	Protect downside on owned stock	Put gains value if stock falls
Covered call	Generate income on stock owned	Premium received, but upside may be capped
Long call	Speculate on upside with limited initial loss	Maximum loss is premium
Long put	Speculate on downside or hedge	Gains as underlying falls below strike

Futures and Forwards

Feature	Futures	Forwards
Trading venue	Exchange-traded	Over-the-counter
Terms	Standardized	Customized
Counterparty risk	Reduced by clearinghouse structure	Depends on counterparty
Mark-to-market	Typically daily	Typically settled as contracted
Obligation	Buyer and seller obligated	Buyer and seller obligated

Derivatives Traps

Option buyers have rights; option writers have obligations.
Premium is paid by the buyer and received by the writer.
A call is not “safe” just because maximum loss is premium; the premium can still be lost entirely.
Covered call writing reduces but does not eliminate downside risk.
Futures and forwards are obligations, not choices.
Hedging reduces a specific risk but may also reduce upside.

Financial Statements

Statement Purposes

Statement	Shows	Key Question Answered
Balance sheet	Assets, liabilities, shareholders’ equity at a point in time	What does the company own and owe?
Income statement	Revenue, expenses, profit over a period	Was the company profitable?
Cash flow statement	Cash inflows and outflows over a period	Where did cash come from and go?
Statement of changes in equity	Changes in shareholders’ equity accounts	What changed owners’ claim on the business?
Notes to financial statements	Accounting policies and details	What assumptions and details explain the statements?

Notes and examples

Accounting Equation

\[ \text{Assets} = \text{Liabilities} + \text{Shareholders' equity} \]

Income Statement Flow

Item	Meaning
Revenue	Sales or service income
Cost of goods sold	Direct cost of goods sold
Gross profit	Revenue minus cost of goods sold
Operating expenses	Selling, general, administrative, depreciation, etc.
Operating income	Profit from core operations
Interest expense	Financing cost
Taxes	Income taxes
Net income	Profit after expenses, interest, and taxes

Cash Flow Categories

Category	Includes	Interpretation
Operating cash flow	Cash from normal operations	Quality of earnings indicator
Investing cash flow	Purchase/sale of long-term assets and investments	Expansion or asset sales
Financing cash flow	Debt, share issuance, dividends, buybacks	How company raises/returns capital

Business Structures

Structure	Key Features	Exam Angle
Sole proprietorship	One owner, simple structure	Owner has unlimited liability
Partnership	Two or more owners	Liability depends on partnership type
Corporation	Separate legal entity	Limited liability for shareholders; separation of ownership and control
Public corporation	Shares distributed to public and traded	More disclosure and market scrutiny
Private corporation	Shares not broadly publicly traded	Less liquid ownership interest

Core Financial Statements

Statement	Snapshot or Period?	Shows	Key Question
Balance sheet	Snapshot at a point in time	Assets, liabilities, shareholders’ equity	What does the company own and owe?
Income statement	Period of time	Revenues, expenses, profit/loss	Was the company profitable?
Cash flow statement	Period of time	Cash from operating, investing, financing activities	Where did cash come from and go?
Statement of changes in equity	Period of time	Changes in shareholders’ equity accounts	What changed owners’ claim?
Notes	Supporting details	Accounting policies, commitments, contingencies	What details are not obvious from the main statements?

Accounting equation:

\[ \text{Assets} = \text{Liabilities} + \text{Shareholders' Equity} \]

Cash Flow Categories

Cash Flow Type	Examples	Interpretation
Operating	Cash from sales, suppliers, wages, working capital	Core business cash generation
Investing	Purchase/sale of equipment, acquisitions, investments	Long-term asset decisions
Financing	Issuing/repaying debt, issuing shares, dividends	Capital structure and distributions

Exam trap: Net income is not the same as cash flow. Accrual accounting records revenues and expenses when earned/incurred, not necessarily when cash moves.

Ratio Formula Sheet

Ratio	Formula	Use	High-Yield Trap
Working capital	Current assets - current liabilities	Short-term liquidity amount	Positive does not guarantee quality of assets
Current ratio	Current assets / current liabilities	Short-term liquidity coverage	Too high may mean inefficient asset use
Quick ratio	(cash + marketable securities + receivables) / current liabilities	More conservative liquidity	Excludes inventory
Debt-to-equity	Total debt / shareholders’ equity	Financial leverage	Industry norms matter
Debt ratio	Total liabilities / total assets	Asset financing by liabilities	Higher leverage raises risk
Interest coverage	EBIT / interest expense	Ability to pay interest	Uses accounting earnings, not cash alone
Gross profit margin	Gross profit / revenue	Production or purchasing profitability	Compare with industry
Net profit margin	Net income / revenue	Overall profitability	Can be affected by one-time items
Return on assets	Net income / average total assets	Efficiency using assets	Asset-heavy industries differ from asset-light industries
Return on equity	Net income / average shareholders’ equity	Return to shareholders	Can rise because of leverage, not only better operations
EPS	(net income - preferred dividends) / weighted average common shares	Profit per common share	Use common-share earnings after preferred dividends
P/E ratio	Market price per share / EPS	Market valuation	High P/E may mean growth expectations or overvaluation
Dividend yield	Annual dividend per share / market price	Cash income rate	Yield rises when price falls, possibly due to risk
Payout ratio	Dividends / net income	Portion of earnings paid out	Very high payout may be unsustainable
Book value per share	Common equity / common shares outstanding	Accounting value per common share	Not necessarily market value

Securities Analysis

Fundamental vs Technical

Approach	Focus	Tools	Best Exam Distinction
Fundamental analysis	Intrinsic value based on business, economy, industry, financials	Ratios, earnings, cash flow, valuation models	Asks what security is worth
Technical analysis	Price and volume patterns	Charts, trends, support/resistance, moving averages	Asks what market behaviour suggests
Quantitative analysis	Statistical/model-driven security evaluation	Factor models, screening, historical data	Model output depends on assumptions
Qualitative analysis	Non-numeric factors	Management quality, brand, governance, competitive position	Important but harder to measure

Notes and examples

Top-Down vs Bottom-Up

Method	Sequence	Example
Top-down	Economy → industry → company	Choose sectors likely to benefit from rate cuts, then select companies
Bottom-up	Company → industry/economy context	Find strong companies regardless of macro view

Industry and Company Analysis

Factor	Why It Matters
Industry life cycle	Growth, maturity, and decline affect valuation and risk
Competitive position	Strong market share or cost advantage may support margins
Revenue stability	Stable revenue can support dividends and debt service
Operating leverage	High fixed costs magnify earnings changes when sales change
Financial leverage	Debt magnifies shareholder returns and risk
Management quality	Strategy, capital allocation, and governance affect long-term value
Dividend policy	Signals income orientation, maturity, and capital needs

Risk and Return Concepts

Risk Type	Meaning	Example
Market risk	Overall market decline	Equity index selloff
Specific / unsystematic risk	Company- or industry-specific risk	Product failure, lawsuit, management issue
Interest rate risk	Price sensitivity to rate changes	Bond price falls when yields rise
Inflation risk	Purchasing power erosion	Fixed coupon income buys less over time
Credit risk	Borrower may default	Corporate bond downgrade
Liquidity risk	Cannot sell quickly at fair price	Thinly traded small-cap stock
Currency risk	Exchange rate movement affects CAD return	U.S. stock falls in CAD terms due to USD weakness
Political/regulatory risk	Rule or policy changes affect value	Tax or sector regulation change
Reinvestment risk	Cash flows reinvested at lower rates	Callable bond redeemed after rates fall
Business risk	Operating performance uncertainty	Sales decline or margin compression
Financial risk	Risk from debt financing	Higher interest burden in weak economy

Notes and examples

Diversification Rules

Concept	Meaning	Exam Cue
Diversification	Combining securities to reduce unsystematic risk	Does not eliminate market risk
Correlation	Degree to which returns move together	Lower correlation improves diversification benefit
Systematic risk	Market-wide risk	Cannot be diversified away fully
Risk premium	Extra expected return for taking risk	Higher risk requires higher expected return

Types of Risk

Risk Type	Meaning	Diversification Effect
Systematic risk	Market-wide risk affecting many securities	Cannot be diversified away fully
Unsystematic risk	Company- or industry-specific risk	Can be reduced through diversification
Interest-rate risk	Rate changes affect security values	Can be managed but not eliminated
Credit risk	Issuer may default or deteriorate	Reduced through issuer diversification and quality control
Liquidity risk	Security may be hard to sell at fair price	Reduced by holding liquid securities
Currency risk	Exchange rates affect returns	Managed through currency exposure or hedging

Portfolio Measures

Measure	What It Indicates	Trap
Standard deviation	Volatility of returns	Measures total variability, not direction
Beta	Sensitivity to market movements	Beta above 1 means more market-sensitive
Correlation	How assets move together	Low or negative correlation improves diversification
Alpha	Return beyond expected return for risk level	Must be interpreted against benchmark/model
Expected return	Probability-weighted return estimate	Not guaranteed

Diversification Rules

Diversification works best when assets are not perfectly correlated.
Holding many securities in the same industry may not provide strong diversification.
Diversification reduces unsystematic risk, not all risk.
Asset allocation often drives portfolio risk more than individual security selection.
Higher expected return usually requires accepting higher risk.

Common Exam Traps

Trap	Correct Thinking
“Guaranteed” means no risk	Guarantees depend on issuer/backer and may not eliminate inflation, liquidity, or opportunity risk
Bond coupon equals investor return	Return depends on purchase price, yield, reinvestment, and sale/maturity value
Preferred shares are debt	Preferred shares are equity with priority features
A high dividend yield always means a bargain	It may reflect a falling share price and dividend risk
CIPF protects market value	CIPF is insolvency-related protection for eligible client property, not market-loss insurance
CDIC covers mutual funds	CDIC covers eligible deposits at member institutions, not securities such as mutual funds, stocks, or bonds
Current yield equals YTM	Current yield ignores capital gain/loss to maturity
Option writer has the right to exercise	Option buyer has the right; writer has the obligation if assigned
Net income equals cash flow	Accrual accounting includes non-cash items and timing differences
Higher ROE is always better	ROE can be boosted by leverage, which increases risk
Market order guarantees price	Market order prioritizes execution, not price
Limit order guarantees execution	Limit order controls price, not execution

Notes and examples

Concept Traps

Primary vs secondary: Issuers raise money in the primary market, not from ordinary exchange trading between investors.
Debt vs equity: Bondholders are creditors; shareholders are owners.
Preferred shares: Preferred dividends are generally more predictable than common dividends but still not the same as bond interest.
Callable bonds: The call feature benefits the issuer, especially when rates decline.
Current yield vs yield to maturity: Current yield ignores capital gain/loss to maturity.
Coupon vs market yield: Coupon is fixed by the bond terms; market yield changes with conditions.
Prospectus: A disclosure document is not a recommendation or guarantee.
CIPF/CDIC-type protection: Do not confuse insolvency or eligible deposit protection with protection against investment losses.
Net income vs cash flow: Profitable companies can still experience cash strain.
High ROE: May reflect high leverage rather than operational excellence.
Option buyer/writer: Buyers have rights; writers have obligations.
Hedging: Reduces selected risks but may also reduce potential gains.

Wording Traps

Watch for exam stems that ask for:

Most likely rather than always true
Best recommendation given client facts
Primary purpose of a rule or product feature
Immediate effect vs long-term effect
Issuer perspective vs investor perspective
Nominal vs real return
Before-tax vs after-tax return if tax context is included
Market price vs par value
Income vs total return

Calculation Traps

Use annual coupon dollars, not market price, to calculate coupon payment.
Use market price, not par, for current yield.
Remember that bond quotes may exclude accrued interest.
Subtract preferred dividends before calculating earnings available to common shareholders if required.
For long calls, add premium to strike for break-even.
For long puts, subtract premium from strike for break-even.
Keep percentages and decimals consistent.

Rapid Calculation Checklist

Before answering a CSC Exam 1 calculation item, identify:

What is being asked? Yield, price, ratio, accrued interest, EPS, valuation, option intrinsic value.
What time period is used? Annual, semi-annual, quarterly, daily accrual.
Which value is the denominator? Market price, par value, assets, equity, revenue, shares.
Are preferred dividends involved? Subtract them before calculating EPS for common shareholders.
Is the bond quoted clean or full? Add accrued interest if calculating total settlement amount.
Is the option a call or put? Call benefits when underlying rises; put benefits when underlying falls.
Is the position long or short? Buyer pays premium and has rights; writer receives premium and has obligations.

Notes and examples

Final Cheat Sheet Checklist

Before moving to your next mock exam, confirm that you can answer these without notes:

What is the difference between a primary and secondary market trade?
Who receives proceeds in an IPO?
What does a prospectus do, and what does it not do?
How do bond prices react when interest rates rise?
Which bond has greater interest-rate sensitivity: long maturity or short maturity?
Why does a callable bond create risk for the investor?
How do current yield and yield to maturity differ?
What are the rights of common shareholders?
How do common and preferred shares differ?
What is the buyer of a call option entitled to do?
What is the writer of a put option obligated to do?
Which financial statement shows assets and liabilities?
Why is net income different from operating cash flow?
What does ROE measure, and how can leverage distort it?
What risk can diversification reduce?
What risk cannot be diversified away completely?

Last-Week Review Priorities

Priority	What to Do
1	Rework all bond price/yield and accrued interest examples until the inverse relationship is automatic
2	Memorize the equity and financial statement ratios with denominator discipline
3	Drill call/put payoff tables and long/short rights versus obligations
4	Compare investor protections: CIPF vs CDIC vs normal market risk
5	Review business cycle, monetary policy, fiscal policy, and yield curve implications
6	Practise order-type scenarios: market, limit, stop, stop-limit, short sale, margin
7	For every practice error, write the missed rule in one sentence and retest it the next day

CSC Exam 1 High-Yield Map

Area	What to Know Cold	Common Candidate Mistake
Canadian investment marketplace	Roles of issuers, investors, dealers, advisers, marketplaces, regulators, clearing systems	Confusing investor protection with a guarantee against market losses
Regulation and conduct	Disclosure, registration, KYC/KYP, suitability, conflicts, market integrity, complaint handling concepts	Treating disclosure rules as investment recommendations
Economics	GDP, inflation, unemployment, interest rates, fiscal policy, monetary policy, business cycles	Memorizing definitions but missing cause-and-effect questions
Interest rates and yields	Yield curve, nominal vs real rates, bond price/yield relationship	Thinking coupon rate changes when market rates change
Fixed income	Bond features, pricing, yields, duration sensitivity, credit risk, call risk, money market instruments	Confusing current yield, coupon rate, and yield to maturity
Equities	Common vs preferred shares, rights, dividends, voting, valuation ratios	Assuming preferred shares have the same upside as common shares
Derivatives	Calls, puts, futures/forwards, hedging vs speculation, option payoff basics	Reversing the rights and obligations of buyers and writers
New issues and financing	Primary vs secondary markets, prospectus, underwriting, IPOs, rights, warrants	Confusing issuer proceeds with investor trading gains
Financial statements	Balance sheet, income statement, cash flow statement, ratios	Reading ratios mechanically without asking what changed
Security analysis	Fundamental, technical, industry, company, and market analysis	Mixing accounting profitability with market valuation
Portfolio risk	Diversification, systematic vs unsystematic risk, beta, correlation	Believing diversification removes all risk

Canadian Investment Marketplace

Core Participants

Participant	Primary Role	Exam-Relevant Distinction
Issuer	Raises capital by issuing securities	Receives proceeds in the primary market
Investor	Provides capital and seeks return	Trades with other investors in secondary markets
Dealer	Facilitates trading, may act as principal or agent	Principal trades from inventory; agent arranges trade for client
Adviser / portfolio manager	Provides investment advice or discretionary management where permitted	Advice and discretionary authority are not the same thing
Marketplace / exchange	Provides trading venue and price discovery	Secondary-market trading usually does not raise new money for issuer
Regulator / self-regulatory organization	Sets and enforces market conduct and registration standards	Does not eliminate investment risk
Clearing and settlement system	Confirms, clears, and settles trades	Reduces operational risk but does not determine investment merit

Notes and examples

Primary vs Secondary Market

Feature	Primary Market	Secondary Market
Main purpose	Issuer raises capital	Investors trade existing securities
Who receives proceeds?	Issuer, net of costs	Selling investor
Examples	IPO, treasury offering, new bond issue, rights offering	Exchange trade, over-the-counter trade
Key documents / process	Prospectus or exemption, underwriting, distribution	Order handling, trading, settlement
Exam trap	“New issue” means new capital for issuer	Active trading does not automatically fund the issuer

Principal vs Agent Capacity

Capacity	What Happens	Risk / Compensation Focus
Principal	Dealer buys or sells from its own inventory	Dealer may earn spread or markup/markdown
Agent	Dealer acts on behalf of client	Dealer usually earns commission or fee

Decision rule: If the dealer is the counterparty to the client, think principal. If the dealer is arranging the trade between buyer and seller, think agent.

Regulation, Investor Protection, and Conduct

Regulatory Goals to Remember

Canadian securities regulation generally focuses on:

Fair and efficient capital markets
Investor protection
Disclosure of material information
Market integrity
Registration and proficiency of market participants
Supervision of dealers and representatives
Suitability and fair dealing obligations
Managing conflicts of interest
Preventing fraud, manipulation, and abusive trading

Notes and examples

Protection Concepts: What They Do and Do Not Do

Concept	What It Helps With	What It Does Not Do
Disclosure	Gives investors material information to assess a security	Does not guarantee the investment is good
Registration	Helps ensure firms and individuals meet required standards	Does not guarantee every recommendation is profitable
KYC / suitability	Connects recommendations to client circumstances and objectives	Does not remove market risk
CIPF-style insolvency protection	Addresses missing property if a member firm becomes insolvent, subject to applicable terms	Does not insure against a poor investment choice or market decline
CDIC-style deposit insurance	Protects eligible deposits at member institutions, subject to applicable terms	Does not cover ordinary investment securities such as stocks and bonds
Market surveillance	Detects and deters improper market activity	Does not prevent all volatility

KYC, KYP, and Suitability

Term	Focus	Practical Meaning
KYC	Know your client	Understand financial situation, risk tolerance, investment objectives, time horizon, knowledge, constraints
KYP	Know your product	Understand structure, risks, costs, liquidity, complexity, and expected behaviour of the product
Suitability	Match product/action to client	A suitable recommendation must fit the client and the product characteristics
Conflict management	Identify and address conflicts	Disclosure alone may not be enough if the conflict is not properly managed

Common Regulation Traps

Disclosure is not approval. A prospectus does not mean the regulator recommends the security.
Risk disclosure is not risk elimination.
Suitability is client-specific. A product can be suitable for one client and unsuitable for another.
Liquidity matters. A technically “good” investment may still be unsuitable if the client may need cash soon.
Market loss is not the same as dealer insolvency.
Registration categories matter. Do not assume every registrant may perform every activity.

Economics and the Investment Environment

Key Economic Indicators

Indicator	What It Measures	Why Investors Care
GDP	Total value of goods and services produced	Broad economic growth or contraction
CPI / inflation	Change in consumer price levels	Purchasing power, interest rates, real returns
Unemployment rate	Labour market weakness or strength	Consumer spending, policy response, business cycle
Retail sales	Consumer spending activity	Strength of household demand
Housing starts	Construction and housing activity	Interest-rate sensitivity and economic confidence
Business investment	Corporate capital spending	Expectations for future growth
Trade balance	Exports minus imports	Currency, growth, sector impacts
Productivity	Output per unit of input	Long-term growth and competitiveness

Notes and examples

Business Cycle Review

Cycle Phase	Typical Features	Securities Impact to Think About
Expansion	Rising output, employment, profits	Equities often benefit; rates may rise if inflation pressures build
Peak	Capacity pressure, inflation concerns	Central bank may tighten; cyclical sectors may become vulnerable
Contraction	Falling demand, weaker profits	Defensive assets/sectors may hold up better; credit risk may rise
Trough	Weak activity but potential stabilization	Markets may anticipate recovery before data fully improves

Monetary vs Fiscal Policy

Policy Type	Controlled By	Tools / Levers	Typical Objective
Monetary policy	Central bank	Policy rates, liquidity operations, money/credit conditions	Inflation control, financial stability, economic support
Fiscal policy	Government	Spending, taxation, deficits/surpluses	Economic stabilization, public services, redistribution, growth

Tightening vs Easing

Policy Move	Usually Means	Common Market Impact
Monetary tightening	Higher rates / less liquidity	Bond prices fall; borrowing costs rise; growth stocks may be pressured
Monetary easing	Lower rates / more liquidity	Bond prices rise; borrowing costs fall; risk assets may benefit
Fiscal stimulus	More spending or lower taxes	Can support growth but may affect deficits/inflation
Fiscal restraint	Less spending or higher taxes	Can slow demand but may improve fiscal position

Inflation, Nominal Return, and Real Return

The real return adjusts nominal return for inflation.

\[ 1 + r_{\text{real}} = \frac{1 + r_{\text{nominal}}}{1 + i} \]

A quick approximation:

\[ r_{\text{real}} \approx r_{\text{nominal}} - i \]

Where \(i\) is inflation.

Exam trap: A 5% investment return is not a 5% real return if inflation is 3%. The investor’s purchasing-power gain is much smaller.

New Issues, Financing, and Listing Securities

Why Issuers Raise Capital

Financing Type	Issuer Gives Investors	Investor Position
Debt financing	Promise to pay interest and principal	Creditor
Equity financing	Ownership interest	Shareholder
Preferred equity	Preference over common dividends/assets, with equity characteristics	Preferred shareholder
Convertible financing	Debt or preferred security with conversion feature	Hybrid exposure

Notes and examples

New Issue Process Concepts

Term	Meaning	Exam Focus
IPO	First public offering of shares	Moves company from private to public ownership
Prospectus	Disclosure document for public distribution	Disclosure, not a guarantee
Preliminary prospectus	Initial disclosure document used before final approval/receipting process is complete	May be associated with marketing but not final sale
Final prospectus	Final disclosure document used for distribution	Contains finalized terms
Underwriting	Investment dealer assists issuer with distribution	Risk depends on underwriting type
Bought deal	Dealer buys issue from issuer for resale	Dealer takes inventory/distribution risk
Best efforts	Dealer attempts to sell issue without guaranteeing full sale	Issuer retains more financing uncertainty
Private placement	Distribution under exemption	Often fewer investors and resale restrictions
Rights offering	Existing shareholders receive rights to buy additional shares	Can protect against dilution
Warrant	Longer-term right to buy securities at set price	Often attached to another security

Rights vs Warrants

Feature	Rights	Warrants
Typical recipient	Existing shareholders	Often investors in a financing package
Typical life	Shorter	Longer
Purpose	Allow shareholders to maintain proportionate ownership	Sweetener or financing feature
Exercise price	Often below market when issued	Often above current market, depending on terms
Main trap	Value depends on share price and subscription terms	Not the same as owning the share

Stock Dividends and Splits

Corporate Action	What Changes	What Usually Does Not Change Immediately
Stock split	More shares, lower price per share mechanically	Total ownership value, before market reaction
Share consolidation	Fewer shares, higher price per share mechanically	Total ownership value, before market reaction
Stock dividend	Additional shares issued	Proportionate ownership may be similar if applied broadly
Cash dividend	Cash paid to shareholders	Company assets decrease by amount paid

Exam trap: A 2-for-1 split does not double an investor’s wealth by itself. The share count doubles, but the price per share adjusts mechanically.

Financial Ratio Cheat Sheet

Liquidity Ratios

Ratio	Plain Formula	What It Indicates	Trap
Working capital	Current assets - current liabilities	Short-term financial cushion	More is not always better if assets are inefficient
Current ratio	Current assets / current liabilities	Ability to meet short-term obligations	Inventory quality matters
Quick ratio	Cash + marketable securities + receivables / current liabilities	More conservative liquidity	Excludes inventory

Notes and examples

Leverage and Solvency Ratios

Ratio	Plain Formula	What It Indicates	Trap
Debt-to-equity	Total debt / shareholders’ equity	Financial leverage	High leverage can magnify ROE and risk
Debt ratio	Total liabilities / total assets	Portion financed by liabilities	Industry norms matter
Interest coverage	EBIT / interest expense	Ability to cover interest	Falling coverage may signal credit deterioration

Profitability Ratios

Ratio	Plain Formula	What It Indicates	Trap
Gross margin	Gross profit / sales	Profit after cost of goods sold	Varies widely by industry
Operating margin	Operating income / sales	Profit from operations	Excludes financing/tax effects
Net profit margin	Net income / sales	Bottom-line profitability	Can be affected by one-time items
ROA	Net income / total assets	Efficiency of asset use	Asset-heavy industries differ
ROE	Net income / shareholders’ equity	Return to shareholders’ equity	Can rise due to leverage, not just better operations

Efficiency Ratios

Ratio	Plain Formula	What It Indicates	Trap
Inventory turnover	Cost of goods sold / average inventory	How quickly inventory sells	Too high may mean stockouts
Receivables turnover	Credit sales / average receivables	Collection efficiency	Credit policy affects results
Asset turnover	Sales / total assets	Revenue generated per asset dollar	Industry comparisons are essential

Market Ratios

Ratio	Plain Formula	What It Indicates	Trap
P/E ratio	Market price per share / EPS	Market valuation relative to earnings	High P/E may reflect growth or overvaluation
Dividend yield	Annual dividend per share / market price	Income yield	High yield may signal distress
Dividend payout	Dividends per share / EPS	Portion of earnings distributed	Unsustainably high payout can be risky
Price-to-book	Market price per share / book value per share	Market value relative to accounting equity	Book value may not reflect intangible value

Ratio Analysis Decision Rules

Compare ratios to prior periods, industry peers, and company strategy.
Do not judge a ratio in isolation.
Ask whether the ratio changed because of the numerator, denominator, or both.
High profitability with weak cash flow deserves scrutiny.
High growth financed by high debt may increase risk.
A “better” ratio in one industry may be normal or poor in another.

Fundamental, Technical, and Market Analysis

Fundamental Analysis

Fundamental analysis estimates value by studying economic, industry, and company factors.

Level	Questions to Ask
Economy	Is growth accelerating or slowing? What are rates and inflation doing?
Industry	Is the industry cyclical, defensive, growing, mature, or declining?
Company	Are earnings, margins, cash flow, balance sheet strength, and management quality improving?
Valuation	Is the security price reasonable relative to earnings, cash flow, dividends, book value, or growth?

Notes and examples

Top-Down vs Bottom-Up

Approach	Starts With	Then Looks At
Top-down	Economy and market outlook	Sectors, industries, then companies
Bottom-up	Individual company fundamentals	Broader economy secondarily

Industry Life Cycle

Stage	Typical Features
Introduction	High uncertainty, limited profits, heavy investment
Growth	Rapid sales growth, increasing competition
Maturity	Slower growth, stable margins, consolidation
Decline	Falling demand, excess capacity, weak pricing

Technical Analysis

Technical analysis studies price, volume, and trading patterns rather than intrinsic value.

Tool / Concept	Focus
Trendline	Direction of price movement
Support	Price area where buying may emerge
Resistance	Price area where selling may emerge
Moving average	Smoothed price trend
Volume	Strength or confirmation of price move
Momentum indicator	Speed or strength of price movement

Exam trap: Technical analysis does not primarily ask whether a company is financially strong. It asks how the security’s price and trading behaviour look.

Calculation Quick Sheet

Return and Price Change

Task	Formula / Rule
Dollar gain/loss	Ending value - beginning value
Holding period return	Income plus price change, divided by beginning value
Approximate real return	Nominal return - inflation
Exact real return	(1 + nominal return) / (1 + inflation) - 1

Notes and examples

Bond Calculations

Task	Formula / Rule
Annual coupon dollars	Coupon rate x par value
Current yield	Annual coupon dollars / market price
Premium bond	Coupon rate greater than market yield
Discount bond	Coupon rate less than market yield
Price effect of rate increase	Existing bond price decreases
Price effect of rate decrease	Existing bond price increases

Equity Calculations

Task	Formula / Rule
EPS	Earnings available to common shareholders / average common shares
P/E	Market price per share / EPS
Dividend yield	Annual dividend per share / market price
Dividend payout	Dividend per share / EPS
Book value per share	Common shareholders’ equity / common shares

Option Calculations

Task	Formula / Rule
Call intrinsic value	max(0, underlying price - strike price)
Put intrinsic value	max(0, strike price - underlying price)
Long call break-even	Strike price + premium
Long put break-even	Strike price - premium
Long option maximum loss	Premium paid

Fast Review Workflows

If the Question Is About a Bond

Ask:

Is it money market or bond market?
Is it trading at premium, discount, or par?
Are rates moving up or down?
Is the issue callable, convertible, secured, or unsecured?
Is the risk mainly interest-rate, credit, liquidity, inflation, reinvestment, or call risk?
Is the calculation asking for coupon, current yield, YTM, or total return?

If the Question Is About a Stock

Is it common or preferred?
Is the investor seeking income, growth, safety, liquidity, or voting control?
Are dividends fixed, variable, cumulative, or discretionary?
Is the valuation measure based on earnings, dividends, book value, or cash flow?
Is the company cyclical, defensive, growth-oriented, or speculative?

If the Question Is About an Option

Is it a call or put?
Is the person the buyer or writer?
What is the strike price?
What is the premium?
Is the option in-the-money, at-the-money, or out-of-the-money?
Is the goal hedging, income, or speculation?

If the Question Is About Financial Statements

Is the item on the balance sheet, income statement, or cash flow statement?
Is the issue about profitability, liquidity, solvency, efficiency, or valuation?
Does the ratio need average balances or period-end balances?
Is the ratio being compared over time, against peers, or in isolation?
Is a stronger-looking number actually caused by higher risk?

Practice Plan Before Mock Exams

Use this quick plan to convert review into exam readiness:

Topic drill: marketplace and regulation
Focus on roles, investor protection limits, primary vs secondary markets, and conduct obligations.
Topic drill: economics and rates
Practice cause-and-effect questions: inflation, central bank policy, yield curves, and currency effects.
Topic drill: fixed income
Do enough original practice questions to make price/yield, premium/discount, call risk, and yield calculations automatic.
Topic drill: equities and derivatives
Drill common/preferred distinctions, option rights/obligations, intrinsic value, and break-even logic.
Topic drill: financial statements and ratios
Practice identifying which statement or ratio applies before calculating.
Mixed set under time pressure
Use detailed explanations to diagnose whether errors are conceptual, calculation-based, or caused by wording.
Full mock exam
After your weak topics improve, simulate exam pacing and review every explanation carefully.

Put the review into practice

Finance Prep

Start CSC Exam 1 \u2014 CSI Canadian Securities Course (CSC) on Web

Use the web app to preview question style, then practise the topics you need to revisit.

Original Finance Prep practice, independent from CSI: not official CSI questions, copied live-exam content, or exam dumps.

Current alignment Aligned to the relevant syllabus, exam elements, competency areas, and topic weights where they are available.

Practice modes Use topic drills, timed mocks, scenario questions, and focused review before deeper mixed practice.

Teaching explanations Explanations show the client, product, compliance, or calculation rule that makes the best answer defensible.

Stable bank Questions are prebuilt and reviewed before publication, so practice is stable and inspectable, not improvised during a quiz.

Study Plan

CSC Exam 1 — CSI Canadian Securities Course (CSC) Cheat Sheet

High-Yield Topic Map

Canadian Securities Market Structure

Key Organizations and Roles

Market Types

Primary Market and New Issues

Economy and Policy Reference

Core Macroeconomic Relationships

Economic Indicators

Business Cycle

Monetary vs Fiscal Policy

Interest Rate and Yield Curve Signals

Yield Curve Shapes

Interest Rate Decision Rules

Total Return

Fixed Income Cheat Sheet

Bond Building Blocks

Bond Price and Yield Rules

Core Fixed Income Formulas

Fixed Income Instruments

Bond Quality and Risk

Bond Terminology

Coupon, Price, and Yield Relationship

Fixed-Income Instruments

Bond Risk Review

Accrued Interest Trap

Fixed-Income Question Strategy

Equity Securities

Common vs Preferred Shares

Preferred Share Types

Equity Formulas

Rights and Warrants

Common vs Preferred Shares

Preferred Share Types

Equity Valuation and Income Ratios

Equity Style and Sector Concepts

Trading Terms

Equity Traps

Equity Trading and Orders

Derivatives Reference

Derivative Types

Option Payoff Logic

Option Value Terms

Options: Calls and Puts

Option Buyer vs Writer

Intrinsic Value

Break-Even Rules for Basic Long Options

Hedging Examples

Futures and Forwards

Derivatives Traps

Financial Statements

Statement Purposes

Accounting Equation

Income Statement Flow

Cash Flow Categories

Business Structures

Core Financial Statements

Cash Flow Categories

Ratio Formula Sheet

Securities Analysis

Fundamental vs Technical

Top-Down vs Bottom-Up

Industry and Company Analysis

Risk and Return Concepts

Diversification Rules

Types of Risk

Portfolio Measures

Diversification Rules

Common Exam Traps

Concept Traps

Wording Traps

Calculation Traps

Rapid Calculation Checklist

Final Cheat Sheet Checklist

Last-Week Review Priorities

CSC Exam 1 High-Yield Map

Canadian Investment Marketplace

Core Participants

Primary vs Secondary Market

Principal vs Agent Capacity