Hong Kong Securities and Finance HKSI Exam Questions and Answers
Question 1. An investment has a 40% probability of returning 0.0% and a 60% probability of returning 8.0%. What
is the expected return?
A. 8.00%
B. 3.20%
C. 4.80%
D. 4.00%
Correct Answer: C. 4.80%
Explanation: Expected return is the probability-weighted average of the possible outcomes. The calculation is 0.40 × 0.0% + 0.60 ×
8.0% = 4.80%. A simple average would ignore the fact that the two outcomes do not have equal probabilities.
Question 2. A share trades at HK$50.00 and pays annual cash dividends of HK$0.50 per share. What is the
dividend yield based on the current price?
A. 99.00%
B. 1.00%
C. 100.00%
D. 0.50%
Correct Answer: B. 1.00%
Explanation: Dividend yield equals annual cash dividend per share divided by current market price per share. HK$0.50 / HK$50.00
× 100 = 1.00%. The calculation does not include capital gains or losses, so it is not a total-return measure.
Question 3. Under a stated convention, a company has debt of 40 million and shareholders' equity of 75 million.
What is its debt-to-equity ratio?
A. 1.53
B. 1.88
C. 0.53
D. -0.47
Correct Answer: C. 0.53
Explanation: Debt-to-equity compares the specified debt balance with shareholders' equity. Using the stated convention, =
0.53. Analysts should verify the precise debt definition before comparing companies because some conventions include or exclude
particular liabilities.
Question 4. An investor buys a call with strike HK$100.00 for a premium of HK$7.00 per unit. Ignoring transaction
costs, what is the breakeven underlying price at expiration?
A. HK$7.00
B. HK$93.00
C. HK$100.00
D. HK$107.00
Correct Answer: D. HK$107.00
Explanation: A long call breaks even at expiration when intrinsic value exactly offsets the premium paid. Therefore the breakeven
is strike plus premium, or HK$100.00 + HK$7.00 = HK$107.00. Below this level the position has a net loss at expiration, while
above it the position has a net profit.
Page 1
,Question 5. A currency pair is quoted at 1.1100 spot and 1.0933 for the relevant forward date, in identical quotation
terms. Which statement is correct?
A. The forward relationship cannot be assessed from the two quoted rates.
B. The base currency trades at a forward discount of approximately 1.50% for the quoted period.
C. The spot and forward rates imply no forward premium or discount.
D. The base currency trades at a forward premium of approximately 1.50% for the quoted period.
Correct Answer: B. The base currency trades at a forward discount of approximately 1.50% for the quoted period.
Explanation: Compare the forward rate with spot using the same quotation convention. The proportional difference is (1.0933 /
1.1100 - 1) × 100 = -1.50%, so the direction follows whether forward is above or below spot. This percentage describes the
quoted-period forward premium or discount and is not automatically an annualized measure.
Question 6. A candidate preparing for Hong Kong Securities & Finance Exams (HKSI) encounters the following
description: “A leverage measure comparing debt to shareholders' equity under the stated accounting definition.”
Which term is most directly associated with this description?
A. Return on equity
B. Earnings per share
C. Current ratio
D. Debt-to-equity ratio
Correct Answer: D. Debt-to-equity ratio
Explanation: Debt-to-equity ratio is best understood as a leverage measure comparing debt to shareholders' equity under the
stated accounting definition. This interpretation is consistent with the way the concept is applied in professional securities and
investment practice, including activity overseen by Securities and Futures Commission (SFC). The other choices describe different
concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 7. A candidate preparing for Hong Kong Securities & Finance Exams (HKSI) encounters the following
description: “The risk that a borrower or counterparty will fail to meet contractual obligations.” Which term is most
directly associated with this description?
A. Idiosyncratic risk
B. Inflation risk
C. Credit risk
D. Interest-rate risk
Correct Answer: C. Credit risk
Explanation: Credit risk is best understood as the risk that a borrower or counterparty will fail to meet contractual obligations. This
interpretation is consistent with the way the concept is applied in professional securities and investment practice, including activity
overseen by Securities and Futures Commission (SFC). The other choices describe different concepts or would lead to a materially
different risk, trading, valuation, or compliance conclusion.
Question 8. A portfolio returned 7.0%, the risk-free rate was 3.0%, and portfolio volatility was 12.0%. What was the
Sharpe ratio?
A. 0.58
B. 0.33
C. 4.00
D. 3.00
Correct Answer: B. 0.33
Explanation: The Sharpe ratio is excess return over the risk-free rate divided by return volatility. Using the figures given, (7.0% -
3.0%) / 12.0% = 0.33. It is a unitless risk-adjusted performance measure, so the volatility belongs in the denominator.
Page 2
,Question 9. A candidate preparing for Hong Kong Securities & Finance Exams (HKSI) encounters the following
description: “A probability-weighted average of possible investment returns under the stated assumptions.”
Which term is most directly associated with this description?
A. Beta
B. Expected return
C. Diversification
D. Asset allocation
Correct Answer: B. Expected return
Explanation: Expected return is best understood as a probability-weighted average of possible investment returns under the stated
assumptions. This interpretation is consistent with the way the concept is applied in professional securities and investment practice,
including activity overseen by Securities and Futures Commission (SFC). The other choices describe different concepts or would
lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 10. A trader takes a short futures position at 200.00. The contract multiplier is 10, and the position is
closed at 205.00. Ignoring fees and daily financing effects, what is the profit or loss per contract?
A. HK$250.00
B. HK$50.00
C. HK$-50.00
D. HK$5.00
Correct Answer: C. HK$-50.00
Explanation: Futures profit or loss equals the price change multiplied by the contract multiplier, with the sign determined by
whether the position is long or short. For this short position, the result is HK$-50.00. The contract's quoted price change alone is not
the cash profit or loss because the multiplier converts the quotation into contract value.
Question 11. An investor buys a put with strike HK$100.00 for a premium of HK$7.00 per unit. Ignoring transaction
costs, what is the breakeven underlying price at expiration?
A. HK$100.00
B. HK$107.00
C. HK$93.00
D. HK$7.00
Correct Answer: C. HK$93.00
Explanation: A long put breaks even at expiration when the put's intrinsic value equals the premium paid. The breakeven is strike
minus premium, or HK$100.00 - HK$7.00 = HK$93.00. A lower underlying price increases the long put's expiration profit after the
breakeven is crossed.
Question 12. A 67-year-old client has a 3-year stated horizon and identifies the primary objective as moderate
growth. Before recommending a complex high-volatility product, what should the representative do first?
A. Recommend the product if its recent return exceeds the client's existing portfolio return.
B. Recommend the product whenever it is legal to sell, regardless of the client's profile.
C. Rely only on the client's age because age is the dominant suitability factor.
D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and capacity, then assess whether
the product fits those facts.
Correct Answer: D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and
capacity, then assess whether the product fits those facts.
Explanation: Suitability or analogous appropriateness standards require the recommendation process to start with a sufficiently
current understanding of the client and the product. Under a framework overseen by Securities and Futures Commission (SFC),
recent performance or legal availability alone does not establish that a product fits the client's circumstances. A complex or volatile
product generally requires particular attention to knowledge, loss capacity, time horizon, liquidity needs, and relevant risk
disclosures.
Page 3
, Question 13. Using CAPM, what required return is implied by a risk-free rate of 3.0%, a market return of 7.0%, and a
beta of 1.1?
A. 7.00%
B. 7.70%
C. 7.40%
D. 10.00%
Correct Answer: C. 7.40%
Explanation: CAPM estimates required return as the risk-free rate plus beta multiplied by the market risk premium. The calculation
is 3.0% + 1.1 × (7.0% - 3.0%) = 7.40%. The beta applies to the market risk premium, not to the entire expected market return.
Question 14. A HK$5,000.00 face-value bond pays a 4.0% annual coupon in 4 equal payment(s) per year. What is
each coupon payment?
A. HK$50.00
B. HK$200.00
C. HK$100.00
D. HK$1,250.00
Correct Answer: A. HK$50.00
Explanation: Annual coupon interest is face value multiplied by the annual coupon rate, which equals HK$200.00. Dividing that
amount by 4 payment period(s) gives HK$50.00 per payment. The bond's market price is irrelevant to the contractual coupon cash
flow unless the question specifically asks for a yield measure.
Question 15. The best bid for a security is HK$78.27 and the best ask is HK$78.77. What is the quoted bid-ask
spread in price units?
A. HK$0.50
B. 0.64%
C. HK$78.52
D. HK$157.04
Correct Answer: A. HK$0.50
Explanation: The quoted spread in price units equals ask minus bid. HK$78.77 - HK$78.27 = HK$0.50. A percentage spread would
require an additional denominator such as the midpoint, but the question asks only for price units.
Question 16. A share trades at HK$50.00 and pays annual cash dividends of HK$4.00 per share. What is the
dividend yield based on the current price?
A. 12.50%
B. 92.00%
C. 8.00%
D. 4.00%
Correct Answer: C. 8.00%
Explanation: Dividend yield equals annual cash dividend per share divided by current market price per share. HK$4.00 / HK$50.00
× 100 = 8.00%. The calculation does not include capital gains or losses, so it is not a total-return measure.
Question 17. A bond portfolio has modified duration of 5.0. If its yield falls by 0.25 percentage point(s), what is the
approximate percentage price change using duration only?
A. -1.25%
B. 5.00%
C. 1.25%
D. 0.25%
Correct Answer: C. 1.25%
Explanation: The duration approximation is percentage price change ≈ -modified duration × change in yield expressed as a
decimal. Applying 5.0 to a 0.25-percentage-point yield move gives approximately 1.25%. This is a first-order estimate and ignores
convexity, so it is most reliable for relatively small yield changes.
Page 4
Question 1. An investment has a 40% probability of returning 0.0% and a 60% probability of returning 8.0%. What
is the expected return?
A. 8.00%
B. 3.20%
C. 4.80%
D. 4.00%
Correct Answer: C. 4.80%
Explanation: Expected return is the probability-weighted average of the possible outcomes. The calculation is 0.40 × 0.0% + 0.60 ×
8.0% = 4.80%. A simple average would ignore the fact that the two outcomes do not have equal probabilities.
Question 2. A share trades at HK$50.00 and pays annual cash dividends of HK$0.50 per share. What is the
dividend yield based on the current price?
A. 99.00%
B. 1.00%
C. 100.00%
D. 0.50%
Correct Answer: B. 1.00%
Explanation: Dividend yield equals annual cash dividend per share divided by current market price per share. HK$0.50 / HK$50.00
× 100 = 1.00%. The calculation does not include capital gains or losses, so it is not a total-return measure.
Question 3. Under a stated convention, a company has debt of 40 million and shareholders' equity of 75 million.
What is its debt-to-equity ratio?
A. 1.53
B. 1.88
C. 0.53
D. -0.47
Correct Answer: C. 0.53
Explanation: Debt-to-equity compares the specified debt balance with shareholders' equity. Using the stated convention, =
0.53. Analysts should verify the precise debt definition before comparing companies because some conventions include or exclude
particular liabilities.
Question 4. An investor buys a call with strike HK$100.00 for a premium of HK$7.00 per unit. Ignoring transaction
costs, what is the breakeven underlying price at expiration?
A. HK$7.00
B. HK$93.00
C. HK$100.00
D. HK$107.00
Correct Answer: D. HK$107.00
Explanation: A long call breaks even at expiration when intrinsic value exactly offsets the premium paid. Therefore the breakeven
is strike plus premium, or HK$100.00 + HK$7.00 = HK$107.00. Below this level the position has a net loss at expiration, while
above it the position has a net profit.
Page 1
,Question 5. A currency pair is quoted at 1.1100 spot and 1.0933 for the relevant forward date, in identical quotation
terms. Which statement is correct?
A. The forward relationship cannot be assessed from the two quoted rates.
B. The base currency trades at a forward discount of approximately 1.50% for the quoted period.
C. The spot and forward rates imply no forward premium or discount.
D. The base currency trades at a forward premium of approximately 1.50% for the quoted period.
Correct Answer: B. The base currency trades at a forward discount of approximately 1.50% for the quoted period.
Explanation: Compare the forward rate with spot using the same quotation convention. The proportional difference is (1.0933 /
1.1100 - 1) × 100 = -1.50%, so the direction follows whether forward is above or below spot. This percentage describes the
quoted-period forward premium or discount and is not automatically an annualized measure.
Question 6. A candidate preparing for Hong Kong Securities & Finance Exams (HKSI) encounters the following
description: “A leverage measure comparing debt to shareholders' equity under the stated accounting definition.”
Which term is most directly associated with this description?
A. Return on equity
B. Earnings per share
C. Current ratio
D. Debt-to-equity ratio
Correct Answer: D. Debt-to-equity ratio
Explanation: Debt-to-equity ratio is best understood as a leverage measure comparing debt to shareholders' equity under the
stated accounting definition. This interpretation is consistent with the way the concept is applied in professional securities and
investment practice, including activity overseen by Securities and Futures Commission (SFC). The other choices describe different
concepts or would lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 7. A candidate preparing for Hong Kong Securities & Finance Exams (HKSI) encounters the following
description: “The risk that a borrower or counterparty will fail to meet contractual obligations.” Which term is most
directly associated with this description?
A. Idiosyncratic risk
B. Inflation risk
C. Credit risk
D. Interest-rate risk
Correct Answer: C. Credit risk
Explanation: Credit risk is best understood as the risk that a borrower or counterparty will fail to meet contractual obligations. This
interpretation is consistent with the way the concept is applied in professional securities and investment practice, including activity
overseen by Securities and Futures Commission (SFC). The other choices describe different concepts or would lead to a materially
different risk, trading, valuation, or compliance conclusion.
Question 8. A portfolio returned 7.0%, the risk-free rate was 3.0%, and portfolio volatility was 12.0%. What was the
Sharpe ratio?
A. 0.58
B. 0.33
C. 4.00
D. 3.00
Correct Answer: B. 0.33
Explanation: The Sharpe ratio is excess return over the risk-free rate divided by return volatility. Using the figures given, (7.0% -
3.0%) / 12.0% = 0.33. It is a unitless risk-adjusted performance measure, so the volatility belongs in the denominator.
Page 2
,Question 9. A candidate preparing for Hong Kong Securities & Finance Exams (HKSI) encounters the following
description: “A probability-weighted average of possible investment returns under the stated assumptions.”
Which term is most directly associated with this description?
A. Beta
B. Expected return
C. Diversification
D. Asset allocation
Correct Answer: B. Expected return
Explanation: Expected return is best understood as a probability-weighted average of possible investment returns under the stated
assumptions. This interpretation is consistent with the way the concept is applied in professional securities and investment practice,
including activity overseen by Securities and Futures Commission (SFC). The other choices describe different concepts or would
lead to a materially different risk, trading, valuation, or compliance conclusion.
Question 10. A trader takes a short futures position at 200.00. The contract multiplier is 10, and the position is
closed at 205.00. Ignoring fees and daily financing effects, what is the profit or loss per contract?
A. HK$250.00
B. HK$50.00
C. HK$-50.00
D. HK$5.00
Correct Answer: C. HK$-50.00
Explanation: Futures profit or loss equals the price change multiplied by the contract multiplier, with the sign determined by
whether the position is long or short. For this short position, the result is HK$-50.00. The contract's quoted price change alone is not
the cash profit or loss because the multiplier converts the quotation into contract value.
Question 11. An investor buys a put with strike HK$100.00 for a premium of HK$7.00 per unit. Ignoring transaction
costs, what is the breakeven underlying price at expiration?
A. HK$100.00
B. HK$107.00
C. HK$93.00
D. HK$7.00
Correct Answer: C. HK$93.00
Explanation: A long put breaks even at expiration when the put's intrinsic value equals the premium paid. The breakeven is strike
minus premium, or HK$100.00 - HK$7.00 = HK$93.00. A lower underlying price increases the long put's expiration profit after the
breakeven is crossed.
Question 12. A 67-year-old client has a 3-year stated horizon and identifies the primary objective as moderate
growth. Before recommending a complex high-volatility product, what should the representative do first?
A. Recommend the product if its recent return exceeds the client's existing portfolio return.
B. Recommend the product whenever it is legal to sell, regardless of the client's profile.
C. Rely only on the client's age because age is the dominant suitability factor.
D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and capacity, then assess whether
the product fits those facts.
Correct Answer: D. Confirm the client's current objectives, financial circumstances, knowledge, risk tolerance and
capacity, then assess whether the product fits those facts.
Explanation: Suitability or analogous appropriateness standards require the recommendation process to start with a sufficiently
current understanding of the client and the product. Under a framework overseen by Securities and Futures Commission (SFC),
recent performance or legal availability alone does not establish that a product fits the client's circumstances. A complex or volatile
product generally requires particular attention to knowledge, loss capacity, time horizon, liquidity needs, and relevant risk
disclosures.
Page 3
, Question 13. Using CAPM, what required return is implied by a risk-free rate of 3.0%, a market return of 7.0%, and a
beta of 1.1?
A. 7.00%
B. 7.70%
C. 7.40%
D. 10.00%
Correct Answer: C. 7.40%
Explanation: CAPM estimates required return as the risk-free rate plus beta multiplied by the market risk premium. The calculation
is 3.0% + 1.1 × (7.0% - 3.0%) = 7.40%. The beta applies to the market risk premium, not to the entire expected market return.
Question 14. A HK$5,000.00 face-value bond pays a 4.0% annual coupon in 4 equal payment(s) per year. What is
each coupon payment?
A. HK$50.00
B. HK$200.00
C. HK$100.00
D. HK$1,250.00
Correct Answer: A. HK$50.00
Explanation: Annual coupon interest is face value multiplied by the annual coupon rate, which equals HK$200.00. Dividing that
amount by 4 payment period(s) gives HK$50.00 per payment. The bond's market price is irrelevant to the contractual coupon cash
flow unless the question specifically asks for a yield measure.
Question 15. The best bid for a security is HK$78.27 and the best ask is HK$78.77. What is the quoted bid-ask
spread in price units?
A. HK$0.50
B. 0.64%
C. HK$78.52
D. HK$157.04
Correct Answer: A. HK$0.50
Explanation: The quoted spread in price units equals ask minus bid. HK$78.77 - HK$78.27 = HK$0.50. A percentage spread would
require an additional denominator such as the midpoint, but the question asks only for price units.
Question 16. A share trades at HK$50.00 and pays annual cash dividends of HK$4.00 per share. What is the
dividend yield based on the current price?
A. 12.50%
B. 92.00%
C. 8.00%
D. 4.00%
Correct Answer: C. 8.00%
Explanation: Dividend yield equals annual cash dividend per share divided by current market price per share. HK$4.00 / HK$50.00
× 100 = 8.00%. The calculation does not include capital gains or losses, so it is not a total-return measure.
Question 17. A bond portfolio has modified duration of 5.0. If its yield falls by 0.25 percentage point(s), what is the
approximate percentage price change using duration only?
A. -1.25%
B. 5.00%
C. 1.25%
D. 0.25%
Correct Answer: C. 1.25%
Explanation: The duration approximation is percentage price change ≈ -modified duration × change in yield expressed as a
decimal. Applying 5.0 to a 0.25-percentage-point yield move gives approximately 1.25%. This is a first-order estimate and ignores
convexity, so it is most reliable for relatively small yield changes.
Page 4
