CSC Exam 1 Cheatsheet — High-Yield Concepts, Formulas & Glossary

Use this cheatsheet as a rapid refresher alongside the Syllabus and Practice. It’s written for CSC Exam 1’s reality: fast recognition, clean terminology, and “small math” under time pressure.

How to use this cheatsheet

• Use the tables to choose the right product quickly.
• Use the formula pack to avoid “blank page” math.
• Use the glossary to decode tricky wording (many misses are vocabulary misses).

Market structure (Canada) — the minimum map

• Primary market: issuer raises capital (new issues).
• Secondary market: investors trade with each other (liquidity + price discovery).
• Venues: exchanges, ATSs, and dealer/OTC markets depending on product.
• Market plumbing: execution → clearing → settlement → custody.

Trading quick reference

Economics — high-yield relationships

• Inflation up → rates often up → bond prices down (conceptually).
• Yield curve: normal vs flat vs inverted (signals expectations; not a prediction tool).
• Real return adjusts for inflation: \[ R_{\text{real}}\approx R_{\text{nominal}}-\pi \]

What it tells you: The approximate purchasing-power return after inflation.

Symbols (what they mean):

• \(R_{\text{nominal}}\): nominal return.
• \(\pi\): inflation rate.
• \(R_{\text{real}}\): real return (approx).

Exam note: This is an approximation; the exact relationship is \(1+r_{real}=\frac{1+r_{nom}}{1+\pi}\).

Security selection — quick cues

Fixed income — must-know rules + formulas

Rules that show up repeatedly

• Bond price and yields move inversely.
• Longer maturity + lower coupon → higher interest rate sensitivity (duration intuition).
• Embedded options (callable/convertible) change the risk profile.

Core formulas (CSC level)

Bond price (present value) \[ P=\sum_{t=1}^{n}\frac{C}{(1+r)^t}+\frac{F}{(1+r)^n} \]

What it tells you: A bond’s price equals the present value of its coupons plus the present value of principal.

Symbols (what they mean):

• \(P\): bond price.
• \(C\): coupon payment per period.
• \(F\): face (par) value repaid at maturity.
• \(r\): discount rate per period (yield per period).
• \(n\): number of periods to maturity.

How it’s tested (CSC level):

• Directional logic: yields up → prices down; yields down → prices up.
• Sensitivity: longer maturity and lower coupon generally increase price sensitivity.

Common pitfalls:

• Mismatching the rate period (annual vs semiannual) with \(n\) and \(C\).
• Confusing current yield with YTM (price changes matter for total return).

Current yield \[ CY=\frac{\text{Annual coupon}}{\text{Market price}} \]

What it tells you: Income yield today (coupon income divided by current price), ignoring capital gains/losses.

What it is NOT: Current yield is not YTM; it ignores pull-to-par and reinvestment assumptions.

Common pitfall: Using face value in the denominator instead of market price.

Approximate YTM (exam-friendly) \[ YTM \approx \frac{C+\frac{F-P}{n}}{\frac{F+P}{2}} \]

What it tells you: A quick approximation of yield to maturity that blends income (coupon) and capital gain/loss from price moving toward par.

Symbols (what they mean):

• \(C\): annual coupon in dollars (not coupon rate).
• \(F\): face value (par).
• \(P\): current price.
• \(n\): years to maturity.

How it’s tested: Identify whether YTM should be higher/lower than coupon based on discount vs premium and time to maturity.

Common pitfalls:

• Plugging in coupon rate instead of coupon dollars.
• Using periods inconsistently (years vs coupon periods).

Duration intuition (small-rate change approximation) \[ \frac{\Delta P}{P}\approx -D_{\text{mod}}\cdot \Delta y \]

What it tells you: Approximate percentage price change for a small yield change.

Symbols (what they mean):

• \(D_{\text{mod}}\): modified duration (interest rate sensitivity).
• \(\Delta y\): change in yield (in decimals; 1% = 0.01).

Exam takeaway: Longer duration → larger price move for the same yield change.

Discount vs premium “ladder” (quick memory)

• Discount: \(YTM > CY > \text{Coupon rate}\)
• Premium: \(\text{Coupon rate} > CY > YTM\)

Clean vs dirty price (language trap)

• Clean price excludes accrued interest.
• Dirty price includes accrued interest.
• If you see “interest since last coupon”, think accrued interest and settlement.

Money market — what belongs here?

• T‑bills: short-term government; typically highest liquidity/lowest credit risk (still rate risk).
• Commercial paper (CP): issuer credit risk matters.
• Repos: collateralized borrowing/lending (concept).
• GICs: term deposits with constraints (liquidity/penalties may apply).

Equities — terms + mini-math that show up

Common vs preferred

• Common: residual claim; variable dividends; voting rights.
• Preferred: stated dividend; priority over common dividends; often interest-rate sensitive; features vary.

Core formulas

Simple total return \[ TR=\frac{V_1-V_0+I}{V_0} \]

What it tells you: Total return = price/value change plus income, relative to the start value.

Symbols (what they mean):

• \(V_0\): starting value.
• \(V_1\): ending value.
• \(I\): income received (dividends/interest/distributions).

Common pitfalls: forgetting income \(I\) and using \(V_1\) in the denominator.

Dividend yield \[ \text{Dividend yield}=\frac{\text{Annual dividend per share}}{\text{Price per share}} \]

What it tells you: The stock’s annual dividend income as a percent of today’s price.

Exam cue: Yield can rise because dividend rises or price falls—don’t confuse “high yield” with “low risk.”

Earnings per share (basic idea) \[ EPS=\frac{\text{Net income - preferred dividends}}{\text{Weighted average common shares}} \]

What it tells you: Profit attributable to common shareholders per share (conceptual per-share earnings power).

Common pitfalls: ignoring preferred dividends or comparing EPS across firms without context (different share counts, one-time items).

P/E (intuition) \[ P/E=\frac{\text{Price per share}}{\text{Earnings per share}} \]

What it tells you: A valuation multiple—how much investors are paying per unit of earnings.

Exam cue: High P/E can imply high growth expectations (or overpricing); low P/E can imply risk or undervaluation—interpret with context.

Corporate actions (fast logic)

• Stock split: shares ↑, price ↓ (value unchanged mechanically).
• Cash dividend: price tends to drop around ex-dividend by roughly the dividend amount (concept).

Derivatives basics — payoffs and breakevens (CSC level)

Options definitions

• Call: right to buy at strike \(K\).
• Put: right to sell at strike \(K\).
• Premium \(P\): paid by buyer; received by seller.

Breakevens (long positions) \[ \text{Long call BE}=K+P \] \[ \text{Long put BE}=K-P \]

What it tells you: The underlying price at expiry where the long option position’s profit is zero.

Symbols (what they mean):

• \(K\): strike price.
• \(P\): premium paid for the option.
• \(S_T\): underlying price at expiry.

How it’s tested:

• Identify the BE quickly for long call/put questions.
• Choose between answers by checking if \(S_T\) is above/below the BE.

Common pitfalls:

• Mixing up call vs put (call BE adds premium; put BE subtracts premium).
• Forgetting that these are at expiry breakevens (not “right now”).

Payoffs at expiry

• Long call: \(\max(S_T-K,0)-P\)
• Long put: \(\max(K-S_T,0)-P\)

Where \(S_T\) is the price at expiry.

Futures/forwards (concept)

• Linear exposure: you gain when price moves your way, lose when it doesn’t.
• Margin and leverage can amplify outcomes; know the direction logic.

Financial statements — read the basics fast

Balance sheet is a snapshot of what the company owns/owes: \[ \text{Assets}=\text{Liabilities}+\text{Shareholders’ equity} \]

What it tells you: The firm’s resources (assets) are funded by either borrowing (liabilities) or owners’ capital (equity).

How it’s tested (CSC level):

• Classify items correctly (asset vs liability vs equity).

• Recognize that higher leverage (more liabilities relative to equity) generally increases risk.

• Liquidity vs solvency: short-term obligations vs long-term leverage.

• Financing choices (debt vs equity) change the capital structure and risk profile (concept).

Income statement shows profitability over a period:

• Revenue → expenses → net income.
• EPS connects net income to common shareholders (concept).

Cash flow statement answers “where did the cash go?”

• CFO (operations), CFI (investing), CFF (financing).
• Positive net income does not guarantee positive operating cash flow (concept).

Ratio mini-pack (know what it implies)

• Current ratio \[ \text{Current ratio}=\frac{\text{Current assets}}{\text{Current liabilities}} \]

  What it tells you: A quick liquidity check—how easily the firm can cover short-term obligations.

  Exam cue: A very low current ratio can signal liquidity strain; interpret in context (industry norms matter).

• Debt-to-equity (concept) \[ D/E=\frac{\text{Total liabilities}}{\text{Shareholders’ equity}} \]

  What it tells you: Leverage—how much borrowing supports the business relative to owners’ capital.

  Exam cue: Higher D/E usually means higher financial risk (especially in downturns).

• Interest coverage (concept) \[ \text{Interest coverage}=\frac{\text{EBIT}}{\text{Interest expense}} \]

  What it tells you: Ability to pay interest from operating earnings.

  Exam cue: Lower coverage increases default/refinancing risk; higher coverage generally indicates more cushion.

Financing and listing securities — core language

• Primary market financing: IPOs, follow-on equity offerings, new debt issues, and private placements.
• Underwriting: firm commitment vs best efforts (concept); syndicates help distribute risk and reach investors.
• Prospectus: disclosure document for public offerings (concept); focus on what it’s for (information + investor protection).
• Listing vs trading: listing enables exchange trading; secondary trading provides liquidity and price discovery.
• Common issuance vocabulary: rights offerings, warrants, convertibles—know the basic logic and dilution direction (concept).

Formula pack (one place)

Explanations are provided above next to each formula; this section is a quick reference.

• Bond price \[ P=\sum_{t=1}^{n}\frac{C}{(1+r)^t}+\frac{F}{(1+r)^n} \]

• Current yield \[ CY=\frac{\text{Annual coupon}}{\text{Market price}} \]

• Approx YTM (exam-friendly) \[ YTM \approx \frac{C+\frac{F-P}{n}}{\frac{F+P}{2}} \]

• Duration (approx) \[ \frac{\Delta P}{P}\approx -D_{\text{mod}}\cdot \Delta y \]

• Total return \[ TR=\frac{V_1-V_0+I}{V_0} \]

• Dividend yield \[ \text{Dividend yield}=\frac{\text{Annual dividend}}{\text{Price}} \]

• Breakevens: Long call \(K+P\) • Long put \(K-P\)

• Earnings per share (concept) \[ EPS=\frac{\text{Net income - preferred dividends}}{\text{Weighted average common shares}} \]

• P/E (concept) \[ P/E=\frac{\text{Price per share}}{\text{Earnings per share}} \]

• Current ratio \[ \text{Current ratio}=\frac{\text{Current assets}}{\text{Current liabilities}} \]

• Debt-to-equity (concept) \[ D/E=\frac{\text{Total liabilities}}{\text{Shareholders’ equity}} \]

• Interest coverage (concept) \[ \text{Interest coverage}=\frac{\text{EBIT}}{\text{Interest expense}} \]

• Real return (approx) \[ R_{\text{real}}\approx R_{\text{nominal}}-\pi \]

Glossary (CSC Exam 1 terminology)

Accrued interest — Interest earned since the last coupon payment; affects bond settlement amounts.
Ask (offer) — Lowest price a seller is willing to accept.
Balance sheet — Snapshot of assets, liabilities, and shareholders’ equity at a point in time.
Bid — Highest price a buyer is willing to pay.
Bid–ask spread — Difference between bid and ask; an implicit trading cost.
Blue-chip — Large, established company with stable reputation (concept).
Book value — Accounting equity value (assets minus liabilities) on the balance sheet.
Callable bond — Bond the issuer can redeem before maturity; increases reinvestment/option risk.
Capital market — Market for longer-term financing and investment (as distinct from money markets).
Cash flow statement — Reports cash flows from operations, investing, and financing.
Clean price — Bond price excluding accrued interest.
Clearing — Post-trade process that matches trades and calculates obligations before settlement (concept).
Convertible security — Security that can be converted into another security (often common shares) under stated terms (concept).
Coupon — Bond interest payment rate/amount.
Credit spread — Yield premium over a benchmark for taking credit risk (concept).
Current ratio — Liquidity ratio: current assets divided by current liabilities.
Current yield — Annual coupon divided by market price.
Debt-to-equity (D/E) — Leverage ratio comparing liabilities to shareholders’ equity (concept).
Dirty price — Bond price including accrued interest.
Dilution — Reduction in existing shareholders’ ownership/earnings per share due to issuing new shares (concept).
Duration — Interest rate sensitivity measure (approximate price change for a yield change).
Earnings per share (EPS) — Net income attributable to common shares divided by weighted average shares (concept).
Ex-dividend date — First day shares trade without the right to the upcoming dividend.
Face value (par) — Principal repaid at maturity for a bond.
Firm commitment underwriting — Underwriter buys the entire issue and resells to investors (concept).
Forward / futures — Agreement to buy/sell an underlying at a future date/price (hedge/speculate).
GDP — Gross Domestic Product; a measure of economic activity/output (concept).
Income statement — Reports revenue, expenses, and net income over a period.
Inflation — General price level increase; reduces real purchasing power.
Initial public offering (IPO) — First public sale of a company’s shares (primary market financing).
Interest coverage — Ability to cover interest expense from operating earnings (concept).
Issuer — Entity that sells securities to raise capital.
Leverage — Using borrowed funds or derivatives to amplify exposure and outcomes.
Limit order — Order with a maximum buy price or minimum sell price.
Liquidity — Ease of buying/selling without moving price materially.
Listing — Admission of a security to trade on an exchange (concept).
Market order — Order to buy/sell immediately at best available price.
Maturity — Date when a debt security’s principal is repaid.
Money market — Short-term debt instruments and funding markets (concept).
Option premium — Price paid by the option buyer to the seller.
P/E ratio — Price per share divided by earnings per share (valuation concept).
Preferred share — Equity with stated dividend and priority over common dividends; features vary.
Primary market — Market where new securities are issued and capital is raised.
Private placement — Sale of securities to select investors rather than through a public offering (concept).
Prospectus — Disclosure document for a public offering (concept).
Rights offering — Offering existing shareholders rights to buy additional shares, typically at a set price (concept).
Secondary market — Investor-to-investor trading; provides liquidity and price discovery.
Settlement — Completion of a trade: delivery of securities and payment.
Short sale — Selling borrowed securities with the intention to buy back later (concept).
Stop order — Trigger-based order that activates when a price level is reached.
Strike price (K) — Price at which an option can be exercised.
Underwriter / underwriting syndicate — Dealer(s) that distribute an issue and help price/market it (concept).
Warrant — Security giving the right to buy shares at a set price before expiry (concept).
Working capital — Current assets minus current liabilities (liquidity concept).
Yield curve — Relationship between yields and maturities at a point in time (concept).
Yield to maturity (YTM) — Total return implied by a bond’s price, coupon, and time to maturity (concept).