Comprehensive CSC Exam 2 cheat sheet: investment + portfolio analysis, mutual funds and ETFs, alternatives and structured products, Canadian taxation concepts, fee-based accounts, client workflows, formulas, and glossary.
Use this cheatsheet as a rapid refresher alongside the Syllabus and Practice. CSC Exam 2 rewards “best answer” thinking: connect objectives and constraints to a practical portfolio decision, then justify it in the right language.
From CSI’s official weighting table (Exam 2 has 100 questions, so % ≈ target questions):
| Topic | Weight | Target questions (of 100) |
|---|---|---|
| Investment Analysis | 18% | 18 |
| Portfolio Analysis | 18% | 18 |
| Mutual Funds | 14% | 14 |
| Exchange-Traded Funds | 10% | 10 |
| Alternative Investments, Other Managed, and Structured Products | 16% | 16 |
| Canadian Taxation | 6% | 6 |
| Fee-Based Accounts and Working with the Retail Client | 8% | 8 |
| Working with the Institutional Client | 10% | 10 |
Source: https://www.csi.ca/en/learning/courses/csc/exam-credits
Profit margin (concept) \[ \text{Profit margin}=\frac{\text{Net income}}{\text{Revenue}} \]
What it tells you: Profitability—how much of each dollar of revenue turns into net income.
Exam cue: Declining margins can signal rising costs, weaker pricing power, or one-time charges (context matters).
ROE (concept) \[ ROE=\frac{\text{Net income}}{\text{Average equity}} \]
What it tells you: Return on equity—profit generated per dollar of shareholders’ equity.
Common pitfall: ROE can be boosted by leverage; high ROE isn’t always “safe” if debt is high.
Current ratio (liquidity) \[ \text{Current ratio}=\frac{\text{Current assets}}{\text{Current liabilities}} \]
What it tells you: Short-term liquidity—ability to cover current obligations with current assets.
Debt-to-equity (leverage, concept) \[ D/E=\frac{\text{Total liabilities}}{\text{Shareholders’ equity}} \]
What it tells you: Financial leverage—how much debt (liabilities) supports the firm relative to equity.
Interest coverage (concept) \[ \text{Interest coverage}=\frac{\text{EBIT}}{\text{Interest expense}} \]
What it tells you: Debt-servicing cushion—how many times operating earnings cover interest payments.
Holding period return \[ HPR=\frac{V_1-V_0+I}{V_0} \]
What it tells you: Total return over a period = change in value plus income, relative to the starting value.
Symbols (what they mean):
Common pitfalls: forgetting \(I\) and dividing by \(V_1\) instead of \(V_0\).
Portfolio return (weights) \[ R_p=\sum_i w_iR_i \]
What it tells you: Portfolio return is the weighted average of the component returns.
Exam cue: The holding with the biggest \(w_i\) often dominates the portfolio outcome.
Expected return (discrete probabilities) \[ E(R)=\sum_i p_iR_i \]
What it tells you: Expected return is the probability-weighted average of possible returns.
Symbols (what they mean):
Variance (two-asset portfolio) \[ \sigma_p^2=w_1^2\sigma_1^2+w_2^2\sigma_2^2+2w_1w_2\sigma_1\sigma_2\rho_{12} \]
What it tells you: Portfolio variance depends on each volatility and the correlation term.
Interpretation (fast):
Standard deviation \[ \sigma=\sqrt{\sigma^2} \]
What it tells you: Volatility is the square root of variance (brings the measure back to “return units”).
Beta (concept) \[ \beta=\frac{\operatorname{Cov}(R_i,R_m)}{\sigma_m^2} \]
What it tells you: Market sensitivity (systematic risk).
Interpretation: \(\beta>1\) amplifies market moves; \(0<\beta<1\) dampens them.
CAPM (concept) \[ E(R_i)=R_f+\beta_i\left(E(R_m)-R_f\right) \]
What it tells you: A rough required/expected return given market exposure (beta).
Exam cue: Higher beta → higher required return (all else equal).
Sharpe ratio \[ S=\frac{R_p-R_f}{\sigma_p} \]
What it tells you: Risk-adjusted performance using total risk (excess return per unit of volatility).
Common pitfall: Comparing Sharpe ratios when inputs aren’t comparable (different horizons or gross vs net returns).
Treynor ratio \[ T=\frac{R_p-R_f}{\beta_p} \]
What it tells you: Excess return per unit of systematic risk (beta).
Exam cue: Treynor is more meaningful when portfolios are well-diversified (unsystematic risk is small).
Alpha (concept) \[ \alpha \approx R_p-\left(R_f+\beta_p(E(R_m)-R_f)\right) \]
What it tells you: Approximate “value added” beyond what CAPM would predict for the portfolio’s beta.
Interpretation: Positive alpha suggests outperformance relative to CAPM expectation (conceptual; depends on model assumptions).
| Constraint that dominates | Common “best” action (concept) |
|---|---|
| Short horizon + liquidity need | reduce volatility/illiquidity; avoid concentration |
| Tax sensitivity | focus on after-tax outcome; avoid confusing distributions with return |
| Low risk capacity (ability) | reduce downside risk; avoid leverage and illiquidity |
| Income need | diversify income sources; avoid reaching for yield without risk controls |
| Concentration risk | diversify; use limits and rebalancing discipline |
NAV (concept) \[ NAV=\frac{\text{Assets - liabilities}}{\text{Units outstanding}} \]
What it tells you: Net asset value per unit—fund net assets divided by units.
Exam cue: Mutual funds generally transact at NAV; ETFs can trade away from NAV (premium/discount) intraday (concept).
Fee drag (concept) \[ R_{\text{net}}\approx R_{\text{gross}}-\text{MER} \]
What it tells you: Ongoing costs (like MER) reduce net returns and compound over time.
Common pitfall: Treating distributions as “free return” and ignoring total return net of costs.
| Risk | What it looks like in a question |
|---|---|
| Illiquidity | lock-ups, gates, redemption restrictions, wide spreads |
| Valuation opacity | infrequent pricing, model-based valuations |
| Leverage | amplified gains/losses; margin calls |
| Fees | multiple layers; incentive/performance fees (concept) |
| Manager/strategy risk | style drift, concentration, operational risk |
Structured products combine a payout formula with issuer terms. Focus on what you get in bad states and what you give up in good states.
Tax rules and rates change. For exam purposes, focus on classification and “what is taxable when” (concept).
Capital gain (concept) \[ \text{Capital gain}=\text{Proceeds}-\text{ACB}-\text{Transaction costs} \]
What it tells you: Taxable capital gain is driven by proceeds minus your adjusted cost base (ACB) and costs to transact.
Exam cue: ROC and other adjustments can change ACB; don’t assume ACB equals purchase price in every scenario (concept).
After-tax return (concept) \[ R_{\text{after}}\approx R_{\text{pre}}\,(1-t) \]
What it tells you: A simple way to adjust a return for a tax rate \(t\) (conceptual approximation).
Common pitfall: Applying one tax rate to all income types; interest/dividends/capital gains can be taxed differently (concept).
Where \(t\) is an applicable tax rate (concept).
Fee-based accounts are often framed around cost transparency, alignment, and suitability for the client’s profile.
Fee math (concept) \[ \text{Annual fee}=\text{Assets}\times\text{Fee rate} \]
What it tells you: Asset-based fees scale linearly with assets; small rate differences can compound into big dollar differences over time.
Exam cue: When comparing fee-based vs transaction-based, focus on client trading frequency, service model, and after-fee outcomes.
High-yield workflow (concept):
Institutional work is more policy-driven:
Explanations are provided above next to each formula; this section is a quick reference.
ACB (Adjusted cost base) — Tax cost of an investment adjusted for certain transactions/distributions (concept).
Alpha — Return above what a benchmark model (like CAPM) would predict (concept).
Alternative investments — Non-traditional asset classes/strategies (real assets, private markets, hedge funds) (concept).
Benchmark — Reference index/portfolio used to evaluate performance and constraints.
Beta — Sensitivity of an asset/portfolio to market movements (systematic risk proxy).
Bid–ask spread — Difference between bid and ask; key ETF trading cost.
Capital gain — Profit on disposition relative to adjusted cost base (concept).
Correlation — How two assets move together; key driver of diversification benefit.
Covariance — Measures co-movement; used in portfolio variance (concept).
Creation/redemption — ETF mechanism that helps keep price near NAV (concept).
Discount/premium (ETF) — ETF price below/above NAV (concept).
Distribution — Payment from a fund to unitholders (interest/dividends/gains/ROC) (concept).
Diversification — Spreading exposure to reduce unsystematic risk.
Drawdown — Peak-to-trough decline; important for client experience and risk capacity.
DSC (Deferred sales charge) — A type of mutual fund sales charge structure (concept).
Efficient frontier — Portfolios with maximum expected return for a given risk (concept).
ETF — Exchange-traded fund; trades intraday like an equity.
Fee-based account — Account where compensation is primarily asset-based or fee-based rather than per-trade (concept).
Front-end load — Sales charge paid at purchase (concept).
Hedge fund — Pooled strategy using techniques such as long/short, leverage, derivatives (concept).
Holding period return (HPR) — Return including price change and income over a period.
Illiquidity — Difficulty selling without a meaningful price concession.
IPS (Investment Policy Statement) — Document capturing objectives, constraints, and rules.
Leverage — Borrowing/derivatives that amplify exposure and outcomes.
Liquidity constraint — Need for cash access that limits product choices.
Lock-up / gating — Restrictions on withdrawing from an investment (concept).
MER — Management Expense Ratio; ongoing fund cost as a % of assets.
Mutual fund — Open-end fund typically priced at NAV (often daily).
NAV — Net asset value per unit for a fund (concept).
Participation rate — % of an underlying move paid by a structured product (concept).
Portfolio variance — Risk measure incorporating volatility and correlation (concept).
Rebalancing — Returning a portfolio to target weights after drift.
ROC (Return of capital) — Distribution returning investor capital; can affect ACB (concept).
Risk capacity — Financial ability to take risk (distinct from willingness).
Risk tolerance — Willingness to experience volatility and loss.
Sharpe ratio — Excess return per unit of total risk (standard deviation).
Structured product — Instrument with a defined payout formula and issuer terms (concept).
Suitability — Matching recommendations to objectives, constraints, and risk profile (concept).
Systematic risk — Market-wide risk that cannot be diversified away.
Tracking error — Deviation from benchmark behaviour (concept).
Trailer fee — Ongoing compensation associated with some fund series/structures (concept).
Treynor ratio — Excess return per unit of systematic risk (beta).
Unsystematic risk — Asset-specific risk diversification can reduce.