Free Practice Questions for CSI CSC2 Exam

To calculate Franco’s total capital gain, we adjust the adjusted cost base (ACB) for reinvested distributions and return of capital (ROC).

Initial ACB: $30,000.

Add Reinvested Distributions: Reinvested distributions increase the ACB. 30,000+1,750=31,75030,000 + 1,750 = 31,750 30 , 000 + 1 , 750 = 31 , 750

Subtract Return of Capital: ROC reduces the ACB. 31,750−850=30,90031,750 - 850 = 30,900 31 , 750 − 850 = 30 , 900

Calculate the Capital Gain: Subtract the adjusted ACB from the sale price. 39,000−30,900=8,10039,000 - 30,900 = 8,100 39 , 000 − 30 , 900 = 8 , 100

A. $1,250: Incorrect, likely a miscalculation of adjusted ACB.

B. $8,100: Correct, based on accurate ACB adjustments and sale price.

C. $6,400: Incorrect, ignores reinvested distributions.

D. $9,000: Incorrect, ignores the impact of ROC adjustments on ACB.

An advisor’s duty of care requires recommendations and accepted orders to be suitable for the client based on know-your-client information, investment objectives, time horizon, risk tolerance, financial circumstances, and investment knowledge. Even when a client requests a trade, the advisor cannot ignore suitability obligations. If the order is unsuitable, the advisor must warn the client, document the concern, and may be required to refuse or escalate the transaction depending on firm policy and regulatory obligations. Compliance refers to following laws and internal rules, but the core ethical breach in this scenario is failing to protect the client’s interests. Integrity involves honesty, and professionalism involves proper conduct. The direct violation is the advisor’s duty of care.

Sinking funds require the issuer to redeem a specified portion of the bond issue at regular intervals. This ensures systematic debt reduction and is mandated regardless of market conditions.

Purchase funds, however, allow the issuer to buy back bonds only if they are available in the market at or below a stipulated price, making redemption conditional on market conditions.

B. Sinking funds can redeem bonds only if they trade below a stipulated price: This applies to purchase funds, not sinking funds.

C. Sinking funds involve the issuer determining when bonds are redeemed while purchase funds involve the investor determining when the bonds are redeemed: Investors have no role in determining bond redemption under either method.

D. Sinking funds can redeem the bonds any time while purchase funds follow a prearranged schedule: Sinking funds follow a schedule, and purchase funds rely on market conditions.

An alternative trading system (ATS) is a trading platform that is not a formal stock exchange but allows for the buying and selling of securities. A dark pool is a type of ATS where trade details are not displayed until after execution, providing anonymity to large institutional trades. Other options like venture exchanges, pink sheets, and OTC bulletin boards are not considered ATSs.

Asset-Backed Commercial Paper (ABCP) and Mortgage-Backed Securities (MBS) are both forms of securitized assets, but they differ in structure and purpose:

ABCP Features : ABCP is a short-term investment backed by a pool of assets such as receivables, loans, or leases. It is designed to provide high liquidity with shorter maturities, often less than a year. This contrasts with MBS, which typically has longer maturities tied to underlying mortgages.

Key Differences :

Liquidity : ABCP is highly liquid and used for short-term financing needs.

Maturity : ABCP generally has maturities of less than a year, while MBS has longer terms.

Risk : MBS carries additional interest rate and prepayment risks due to its mortgage backing.

Why Other Options Are Incorrect :

A. ABCP minimizes roll-over risk : Roll-over risk exists with ABCP, as investors may need to reinvest upon maturity.

C. ABCP offers maturity dates of at least three years : ABCP typically has much shorter maturities.

D. ABCP guarantees principal repayment if held to maturity : This guarantee depends on the underlying assets and is not inherent in all ABCP.