FUNDAMENTALS OF INVESTING
(CANADIAN EDITION) -
COMPREHENSIVE ADVANCED
QUESTIONS AND ANSWERS. VERIFIED
2026/2027
1. Which of the following describes the ‘Margin Call’ price for a long position if an investor
buys shares at price ‘P’ with an initial margin ‘IM’ and a maintenance margin ‘MM’?
A. P * (1 - IM) / (1 - MM)
B. P * (IM) / (MM)
C. P * (1 + IM) / (1 + MM)
D. P * (1 - MM) / (1 - IM)
Answer: A
Conceptual Explanation: The formula for the margin call price on a long position is the
initial loan divided by (1 - maintenance margin). Since the loan is P * (1 - IM), the formula is
P * (1 - IM) / (1 - MM).
2. An investor short sells 200 shares of a stock at $50 per share. The initial margin
requirement is 60%. If the stock price rises to $60, what is the remaining margin in the
account?
A. $3,000
,B. $4,000
C. $5,000
D. $6,000
Answer: B
Conceptual Explanation: Initial equity = $50 * 200 * 0.60 = $6,000. Total account value =
$10,000 (sale) + $6,000 (margin) = $16,000. New cost to cover = $60 * 200 = $12,000.
Remaining margin = $16,000 - $12,000 = $4,000.
3. According to the Semi-Strong Form of the Efficient Market Hypothesis (EMH), which
information is already reflected in stock prices?
A. All publicly available information, including financial statements and economic data.
B. Only past price and volume data.
C. All information, including private ‘insider’ information.
D. Only information related to dividend policy and earnings announcements.
Answer: A
Conceptual Explanation: The semi-strong form of EMH states that stock prices adjust
rapidly to all new public information; thus, fundamental analysis cannot consistently
produce excess returns.
, 4. A Canadian investor receives a $1,000 dividend from a Canadian corporation. How does the
‘Gross-Up and Credit’ system generally affect the effective tax rate compared to interest
income?
A. Dividends are taxed at a higher effective rate due to the gross-up.
B. Dividends are taxed at the same rate as interest income.
C. Dividends are tax-exempt if held in a non-registered account.
D. Dividends result in a lower effective tax rate because of the dividend tax credit.
Answer: D
Conceptual Explanation: In Canada, the gross-up and dividend tax credit system is
designed to prevent double taxation of corporate profits, typically resulting in a lower
effective tax rate for dividends compared to fully taxable interest income.
5. Using the Constant Growth Dividend Discount Model (Gordon Growth Model), if the
expected dividend next year is $2.00, the required rate of return is 10%, and the growth rate
is 5%, what is the intrinsic value?
A. $20.00
B. $10.00
C. $50.00
D. $40.00
Answer: D
(CANADIAN EDITION) -
COMPREHENSIVE ADVANCED
QUESTIONS AND ANSWERS. VERIFIED
2026/2027
1. Which of the following describes the ‘Margin Call’ price for a long position if an investor
buys shares at price ‘P’ with an initial margin ‘IM’ and a maintenance margin ‘MM’?
A. P * (1 - IM) / (1 - MM)
B. P * (IM) / (MM)
C. P * (1 + IM) / (1 + MM)
D. P * (1 - MM) / (1 - IM)
Answer: A
Conceptual Explanation: The formula for the margin call price on a long position is the
initial loan divided by (1 - maintenance margin). Since the loan is P * (1 - IM), the formula is
P * (1 - IM) / (1 - MM).
2. An investor short sells 200 shares of a stock at $50 per share. The initial margin
requirement is 60%. If the stock price rises to $60, what is the remaining margin in the
account?
A. $3,000
,B. $4,000
C. $5,000
D. $6,000
Answer: B
Conceptual Explanation: Initial equity = $50 * 200 * 0.60 = $6,000. Total account value =
$10,000 (sale) + $6,000 (margin) = $16,000. New cost to cover = $60 * 200 = $12,000.
Remaining margin = $16,000 - $12,000 = $4,000.
3. According to the Semi-Strong Form of the Efficient Market Hypothesis (EMH), which
information is already reflected in stock prices?
A. All publicly available information, including financial statements and economic data.
B. Only past price and volume data.
C. All information, including private ‘insider’ information.
D. Only information related to dividend policy and earnings announcements.
Answer: A
Conceptual Explanation: The semi-strong form of EMH states that stock prices adjust
rapidly to all new public information; thus, fundamental analysis cannot consistently
produce excess returns.
, 4. A Canadian investor receives a $1,000 dividend from a Canadian corporation. How does the
‘Gross-Up and Credit’ system generally affect the effective tax rate compared to interest
income?
A. Dividends are taxed at a higher effective rate due to the gross-up.
B. Dividends are taxed at the same rate as interest income.
C. Dividends are tax-exempt if held in a non-registered account.
D. Dividends result in a lower effective tax rate because of the dividend tax credit.
Answer: D
Conceptual Explanation: In Canada, the gross-up and dividend tax credit system is
designed to prevent double taxation of corporate profits, typically resulting in a lower
effective tax rate for dividends compared to fully taxable interest income.
5. Using the Constant Growth Dividend Discount Model (Gordon Growth Model), if the
expected dividend next year is $2.00, the required rate of return is 10%, and the growth rate
is 5%, what is the intrinsic value?
A. $20.00
B. $10.00
C. $50.00
D. $40.00
Answer: D
