Question 1

A company unexpectedly announces a new product launch, which leads to an immediate and significant increase in its stock price. An investor who learns about the product launch a few hours later decides to buy the stock, expecting the price to continue rising. However, the price remains stable after the initial surge.Which market theory does this scenario best support?

Options :

A : Strong form of Efficient Market Hypothesis.

B : Rational Expectations Hypothesis.

C : Semi-Strong form of Efficient Market Hypothesis.

D : Random Walk Theory.

Answer: C

Question 2

John is considering investing in a Canadian equity mutual fund. He notices that the fund's name suggests a focus on Canadian stocks. However, upon reviewing the fund's portfolio, he discovers that only 60% of its assets are invested in Canadian equities, with the rest in U.S. stocks. What issue might this create for John's investment strategy?

Options :

A : The fund may have higher risk than expected due to its international exposure.

B : The fund-s performance may not align with other Canadian equity funds, complicating peer group comparisons.

C : The fund may be more volatile due to currency fluctuations between Canada and the U.S.

D : The fund might underperform during periods of Canadian market growth due to its diversified portfolio.

Answer: B

Question 3

Tom, a liability trader, has been suddenly asked to sell a large amount of XYZ stock for a client. The market for XYZ stock is currently showing a bid of $10 and an ask of $10.10. Tom decides to buy the stock at $10.10 and aims to sell it at a higher price later. What type of trade is Tom engaging in?

Options :

A : Proactive trade.

B : Speculative trade.

C : Reactive trade.

D : Arbitrage trade.

Answer: C

Question 4

An investor comparing two funds observes that both have the same average return over five years. However, Fund A has a standard deviation of returns of 8%, while Fund B's standard deviation is 3%. Which fund is likely to have the narrower probable range of returns, and why is this significant?

Options :

A : It-s not possible to determine without knowing the funds' betas.

B : Both funds will have the same range of returns since their average returns are identical.

C : Fund A, because a higher standard deviation indicates more predictable outcomes.

D : Fund B, because a lower standard deviation indicates less variability in returns.

Answer: D

Question 5

As an institutional salesperson, you are dealing with a client who lacks experience in derivatives but is interested in investing in them. The client insists they can handle the risks. What should you do?

Options :

A : Proceed with the transaction since the client is confident in their decision-making abilities.

B : Recommend that the client undergo further education on derivatives before making any investment.

C : Inform the client that they need to pass a suitability assessment before proceeding with the transaction.

D : Advise the client to diversify their portfolio instead of investing heavily in derivatives.

Answer: C

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