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CSC Exam 2 Practice Questions: 10 Free Volume 2 Questions with Answers
Ready to test yourself on CSC Exam 2? Below are 10 free practice questions covering the main Volume 2 topics — investment analysis, portfolio management, mutual funds, ETFs, structured and managed products, taxation and fee-based accounts. Pick your answer, then tap "Show answer" for the correct choice and the explanation.
These questions are taken word-for-word from the SmartExam CSC Exam 2 practice bank. They are written for study and are not actual exam questions.
Note: since January 1, 2026 the CSC is no longer used for CIRO investment-dealer approval (the CIRE replaced it); it remains relevant for other purposes such as mutual fund representative licensing and the CIM designation. See CSC vs CIRE.
Question 1 — Technical analysis
In technical analysis, what does a 'breakout' typically signal?
- A) The price has moved back into its moving average range.
- B) The price has moved outside a defined support or resistance level, usually indicating the start of a new trend.
- C) Trading volume has decreased significantly.
- D) The stock is about to pay a dividend.
Show answer
Correct answer: B — The price has moved outside a defined support or resistance level, usually indicating the start of a new trend.
A breakout occurs when a stock price moves above a resistance level or below a support level, often accompanied by increased volume. Technical analysts view this as a signal that a new trend in that direction is beginning.
Question 2 — Industry analysis
When conducting a fundamental analysis of an industry, which classification applies to an industry where sales and earnings are consistently expanding faster than the overall economy?
- A) Mature Industry
- B) Cyclical Industry
- C) Growth Industry
- D) Defensive Industry
Show answer
Correct answer: C — Growth Industry
A growth industry is one in which sales and earnings are consistently expanding at a faster rate than in most other industries. Companies in these industries often do not pay large dividends as they reinvest earnings to fund expansion.
Question 3 — Company analysis — ratios
When analyzing a company's financial statements, which ratio would best help an investor determine if the company is effectively managing its production costs relative to its revenue?
- A) Debt-to-Equity Ratio
- B) Gross Profit Margin
- C) Return on Equity
- D) Interest Coverage Ratio
Show answer
Correct answer: B — Gross Profit Margin
The Gross Profit Margin is calculated as (Revenue - Cost of Sales) / Revenue. It indicates how efficiently a company produces its goods. A higher margin suggests the company is keeping production costs low relative to the sales price.
Question 4 — Valuation ratios
Which valuation ratio relates a company's stock price to the book value of its equity, and what does a low ratio typically indicate?
- A) P/E Ratio; it indicates high growth potential.
- B) Price-to-Book (P/B) Ratio; it may indicate the stock is undervalued.
- C) Dividend Yield; it indicates a safe investment.
- D) Price-to-Sales Ratio; it indicates high profit margins.
Show answer
Correct answer: B — Price-to-Book (P/B) Ratio; it may indicate the stock is undervalued.
The Price-to-Book (P/B) ratio compares the market price per share to the equity book value per share. A low P/B ratio (e.g., below 1.0) often suggests that the stock is undervalued or that the company is in financial distress.
Question 5 — Portfolio performance
In portfolio management, what does 'Alpha' measure?
- A) The portfolio's volatility relative to the market.
- B) The value added by the portfolio manager through active selection, above the benchmark return.
- C) The correlation between two assets.
- D) The risk-free rate of return.
Show answer
Correct answer: B — The value added by the portfolio manager through active selection, above the benchmark return.
Alpha is a measure of performance on a risk-adjusted basis. A positive alpha indicates that the portfolio manager has generated returns in excess of what would be expected given the portfolio's beta (market risk).
Question 6 — Exchange-traded funds
What is 'Tracking Error' in the context of an ETF?
- A) The difference between the ETF's price and its Net Asset Value.
- B) The difference between the ETF's return and the return of its benchmark index.
- C) The commission charged to buy the ETF.
- D) The error rate of the algorithm used to trade the ETF.
Show answer
Correct answer: B — The difference between the ETF's return and the return of its benchmark index.
Tracking error measures how closely an ETF follows its index. Sources of error include management fees, cash drag, and sampling techniques.
Question 7 — Structured products
In the context of structured products, what is a 'Principal-Protected Note' (PPN)?
- A) A debt instrument issued by a bank that guarantees the return of principal at maturity with returns linked to an underlying asset.
- B) A mutual fund that invests solely in government bonds.
- C) An equity security that pays a fixed dividend.
- D) A high-yield corporate bond.
Show answer
Correct answer: A — A debt instrument issued by a bank that guarantees the return of principal at maturity with returns linked to an underlying asset.
A PPN is a debt instrument issued by a bank. It guarantees the return of the principal amount at maturity. The interest rate is tied to the performance of an underlying asset, such as a stock index or mutual fund.
Question 8 — Other managed products
What is the primary benefit of naming a beneficiary for a Segregated Fund contract?
- A) Lower management fees.
- B) Bypassing probate and potential creditor protection.
- C) Tax-free withdrawals.
- D) Higher guaranteed returns.
Show answer
Correct answer: B — Bypassing probate and potential creditor protection.
If a beneficiary is named, segregated fund proceeds are paid directly to them upon death, avoiding probate fees and delays. It may also offer protection from the contract holder's creditors during life.
Question 9 — Canadian taxation
What happens to the Adjusted Cost Base (ACB) of a mutual fund if distributions are reinvested?
- A) The ACB remains the same.
- B) The ACB decreases.
- C) The ACB increases by the amount of the reinvested distribution.
- D) The ACB becomes zero.
Show answer
Correct answer: C — The ACB increases by the amount of the reinvested distribution.
Reinvested distributions are taxable in the year they occur. To prevent double taxation (paying capital gains tax on money that was already taxed as income), the amount reinvested is added to the ACB.
Question 10 — Fee-based accounts
What is the primary difference between a 'Mutual Fund Wrap' and a standard 'Fund of Funds'?
- A) Mutual fund wraps have lower fees.
- B) In a mutual fund wrap, the client holds the actual underlying funds directly in their account, whereas in a fund of funds, they own units of the top-level fund.
- C) Fund of funds are actively managed, while wraps are passive.
- D) Wraps are only for institutional investors.
Show answer
Correct answer: B — In a mutual fund wrap, the client holds the actual underlying funds directly in their account, whereas in a fund of funds, they own units of the top-level fund.
In a mutual fund wrap, a separate account is established for the client, and the selected funds are held inside that dedicated account. This provides direct ownership transparency compared to the pooled nature of a fund of funds.
Where the marks are on Exam 2
CSI publishes the topic weightings for Exam 2. The exam is 100 multiple-choice questions in 2 hours, with a 60% pass mark.
The heaviest topics are Investment Analysis (18%), Portfolio Analysis (18%) and Alternative Investments, Other Managed and Structured Products (16%), followed by Mutual Funds (14%). Investment and portfolio analysis together make up 36%, so ratio analysis, valuation, risk and performance measures deserve the most practice. For the first exam's breakdown, see CSC Exam 1 (Volume 1) weighting.
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Frequently asked questions
Are these real CSC exam questions?
No. They come from SmartExam's own CSC Exam 2 practice bank and are written for study. They are not actual exam questions.
How many questions are on CSC Exam 2?
100 multiple-choice questions in 2 hours, with a 60% passing grade, per CSI.
Sources
- CSI — CSC exam details and Exam 2 weightings: csi.ca/en/learning/courses/csc/exam-credits
- CSI — CSC course page (2026 CIRO notice): csi.ca/en/learning/courses/csc
- CSI — New CSC FAQs: csi.ca/en/new-csc-faqs
Information checked October 13, 2026. Answers follow the CSC course material; confirm current rules with CSI.
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