FUNDAMENTALS OF INVESTING
(CANADIAN 10TH ED) ADVANCED TEST
BANK QUESTIONS AND ANSWERS.
VERIFIED 2026/2027
1. An investor purchases 200 shares of a TSX-listed stock at $60 per share using a 60% initial
margin. If the maintenance margin is 35%, at what stock price will the investor receive a
margin call?
A. $33.33
B. $36.92
C. $40.00
D. $24.00
Answer: B
Conceptual Explanation: Margin call price = (Initial Price * (1 - Initial Margin)) / (1 -
Maintenance Margin). Here, (60 * (1 - 0.60)) / (1 - 0.35) = .65 = $36.92.
2. Which of the following statements best describes the difference between the Capital
Market Line (CML) and the Security Market Line (SML)?
A. The CML uses beta as the risk measure, while the SML uses standard deviation.
B. The CML applies to all securities, while the SML applies only to efficient portfolios.
,C. The CML is used to determine the expected return of individual stocks, while the SML is
for the market as a whole.
D. The CML measures risk by total risk (standard deviation), whereas the SML measures
risk by systematic risk (beta).
Answer: D
Conceptual Explanation: The CML plots the return of efficient portfolios against their
total risk (standard deviation), while the SML plots the return of individual assets or
portfolios against their systematic risk (beta).
3. Under the Canadian Income Tax Act, what is the ‘inclusion rate’ for capital gains realized by
an individual investor as of late 2023?
A. 25%
B. 75%
C. 50%
D. 100%
Answer: C
Conceptual Explanation: In Canada, the standard inclusion rate for capital gains is 50%,
meaning only half of the realized gain is added to the taxpayer’s taxable income.
, 4. A bond has a duration of 8.5 years and a convexity of 120. If market interest rates increase
by 100 basis points, what is the approximate percentage change in the bond’s price using
both duration and convexity?
A. -8.50%
B. -9.10%
C. -7.90%
D. -8.44%
Answer: C
Conceptual Explanation: Price change = (-Duration * Change in yield) + (0.5 * Convexity *
(Change in yield)^2). Here, (-8.5 * 0.01) + (0.5 * 120 * 0.01^2) = -0.085 + 0.006 = -0.079 or -
7.9%.
5. According to the Efficient Market Hypothesis (EMH), if the market is semi-strong form
efficient, which of the following would be most likely to generate abnormal returns?
A. Analyzing historical price patterns and volume.
B. Trading based on material non-public information.
C. Utilizing publicly available financial statements and earnings news.
D. Using a buy-and-hold strategy with an index fund.
Answer: B
(CANADIAN 10TH ED) ADVANCED TEST
BANK QUESTIONS AND ANSWERS.
VERIFIED 2026/2027
1. An investor purchases 200 shares of a TSX-listed stock at $60 per share using a 60% initial
margin. If the maintenance margin is 35%, at what stock price will the investor receive a
margin call?
A. $33.33
B. $36.92
C. $40.00
D. $24.00
Answer: B
Conceptual Explanation: Margin call price = (Initial Price * (1 - Initial Margin)) / (1 -
Maintenance Margin). Here, (60 * (1 - 0.60)) / (1 - 0.35) = .65 = $36.92.
2. Which of the following statements best describes the difference between the Capital
Market Line (CML) and the Security Market Line (SML)?
A. The CML uses beta as the risk measure, while the SML uses standard deviation.
B. The CML applies to all securities, while the SML applies only to efficient portfolios.
,C. The CML is used to determine the expected return of individual stocks, while the SML is
for the market as a whole.
D. The CML measures risk by total risk (standard deviation), whereas the SML measures
risk by systematic risk (beta).
Answer: D
Conceptual Explanation: The CML plots the return of efficient portfolios against their
total risk (standard deviation), while the SML plots the return of individual assets or
portfolios against their systematic risk (beta).
3. Under the Canadian Income Tax Act, what is the ‘inclusion rate’ for capital gains realized by
an individual investor as of late 2023?
A. 25%
B. 75%
C. 50%
D. 100%
Answer: C
Conceptual Explanation: In Canada, the standard inclusion rate for capital gains is 50%,
meaning only half of the realized gain is added to the taxpayer’s taxable income.
, 4. A bond has a duration of 8.5 years and a convexity of 120. If market interest rates increase
by 100 basis points, what is the approximate percentage change in the bond’s price using
both duration and convexity?
A. -8.50%
B. -9.10%
C. -7.90%
D. -8.44%
Answer: C
Conceptual Explanation: Price change = (-Duration * Change in yield) + (0.5 * Convexity *
(Change in yield)^2). Here, (-8.5 * 0.01) + (0.5 * 120 * 0.01^2) = -0.085 + 0.006 = -0.079 or -
7.9%.
5. According to the Efficient Market Hypothesis (EMH), if the market is semi-strong form
efficient, which of the following would be most likely to generate abnormal returns?
A. Analyzing historical price patterns and volume.
B. Trading based on material non-public information.
C. Utilizing publicly available financial statements and earnings news.
D. Using a buy-and-hold strategy with an index fund.
Answer: B
