COMPREHENSIVE EXAM:
FUNDAMENTALS OF INVESTING
(CANADIAN 2ND EDITION) QUESTIONS
AND ANSWERS. VERIFIED 2026/2027
1. An investor sells short 200 shares of a TSX-listed stock at $50 per share. If the initial margin
requirement is 50%, what is the minimum initial equity required in the account?
A. $2,500
B. $10,000
C. $7,500
D. $5,000
Answer: D
Conceptual Explanation: The initial margin is calculated as the market value of the short
sale multiplied by the margin requirement: (200 shares * $50) * 0.50 = $5,000.
2. Which of the following best describes the ‘Separation Theorem’ in Modern Portfolio
Theory?
A. The decision to diversify is separate from the decision to invest in risky assets.
B. Systematic risk is mathematically separated from unsystematic risk using Beta.
,C. The investment decision (finding the optimal risky portfolio) is separate from the
financing decision (allocating between risk-free and risky assets).
D. Growth stocks should be kept in a separate account from value stocks for tax efficiency.
Answer: C
Conceptual Explanation: The Separation Theorem states that the process of determining
the optimal portfolio of risky assets is independent of an individual investor’s risk aversion;
risk aversion only dictates the allocation between the risk-free asset and that optimal
portfolio.
3. In the context of Canadian taxation, which of the following is TRUE regarding Capital
Gains?
A. Only 50% of a realized capital gain is included in taxable income.
B. Capital gains are only taxed if the asset was held for less than one year.
C. 100% of capital gains are added to the taxpayer’s income.
D. Capital gains in a TFSA are subject to a 15% withholding tax.
Answer: A
Conceptual Explanation: Under current Canadian tax law, the inclusion rate for capital
gains is 50%, meaning only half of the gain is taxed at the individual’s marginal rate.
, 4. A bond has a Macaulay duration of 8.5 years and a yield to maturity of 6%. What is its
modified duration?
A. 9.01 years
B. 8.50 years
C. 8.02 years
D. 7.94 years
Answer: C
Conceptual Explanation: Modified Duration = Macaulay Duration / (1 + YTM/n).
Assuming annual compounding: 8.5 / (1 + 0.06) = 8.0188 or approximately 8.02.
5. According to the Efficient Market Hypothesis (EMH), which form of efficiency suggests that
technical analysis is useless because all price and volume data are already reflected in stock
prices?
A. Strong-form efficiency
B. Semi-strong-form efficiency
C. Weak-form efficiency
D. Fundamental efficiency
Answer: C
FUNDAMENTALS OF INVESTING
(CANADIAN 2ND EDITION) QUESTIONS
AND ANSWERS. VERIFIED 2026/2027
1. An investor sells short 200 shares of a TSX-listed stock at $50 per share. If the initial margin
requirement is 50%, what is the minimum initial equity required in the account?
A. $2,500
B. $10,000
C. $7,500
D. $5,000
Answer: D
Conceptual Explanation: The initial margin is calculated as the market value of the short
sale multiplied by the margin requirement: (200 shares * $50) * 0.50 = $5,000.
2. Which of the following best describes the ‘Separation Theorem’ in Modern Portfolio
Theory?
A. The decision to diversify is separate from the decision to invest in risky assets.
B. Systematic risk is mathematically separated from unsystematic risk using Beta.
,C. The investment decision (finding the optimal risky portfolio) is separate from the
financing decision (allocating between risk-free and risky assets).
D. Growth stocks should be kept in a separate account from value stocks for tax efficiency.
Answer: C
Conceptual Explanation: The Separation Theorem states that the process of determining
the optimal portfolio of risky assets is independent of an individual investor’s risk aversion;
risk aversion only dictates the allocation between the risk-free asset and that optimal
portfolio.
3. In the context of Canadian taxation, which of the following is TRUE regarding Capital
Gains?
A. Only 50% of a realized capital gain is included in taxable income.
B. Capital gains are only taxed if the asset was held for less than one year.
C. 100% of capital gains are added to the taxpayer’s income.
D. Capital gains in a TFSA are subject to a 15% withholding tax.
Answer: A
Conceptual Explanation: Under current Canadian tax law, the inclusion rate for capital
gains is 50%, meaning only half of the gain is taxed at the individual’s marginal rate.
, 4. A bond has a Macaulay duration of 8.5 years and a yield to maturity of 6%. What is its
modified duration?
A. 9.01 years
B. 8.50 years
C. 8.02 years
D. 7.94 years
Answer: C
Conceptual Explanation: Modified Duration = Macaulay Duration / (1 + YTM/n).
Assuming annual compounding: 8.5 / (1 + 0.06) = 8.0188 or approximately 8.02.
5. According to the Efficient Market Hypothesis (EMH), which form of efficiency suggests that
technical analysis is useless because all price and volume data are already reflected in stock
prices?
A. Strong-form efficiency
B. Semi-strong-form efficiency
C. Weak-form efficiency
D. Fundamental efficiency
Answer: C
