Canadian Securities Course (CSC) Level 2 Practice Exam

Which investment type typically has the least expected return according to the provided text?

1. Preferred shares

2. Common shares

3. Debentures

4. T-Bills

The correct answer is: T-Bills

T-Bills, or Treasury Bills, are short-term debt instruments issued by the government typically with maturities of a few weeks to a year. They are considered one of the safest investments available because they are backed by the full faith and credit of the government, which minimizes the risk of default. This low risk is a key factor in determining their expected return. The expected returns for investments are generally correlated with their risk levels; the lower the risk, the lower the potential returns. Since T-Bills are virtually risk-free, their returns are much lower than those associated with equities like common shares or preferred shares, and even lower than debentures, which carry some credit risk. This characteristic positions T-Bills as the investment type with the least expected return compared to the other options, making them a typical choice for investors seeking capital preservation rather than growth.