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2026 Statistics

Key Facts: SEC-CISI Diploma Exam

100

Practice Questions

OpenExamPrep

70%

Passing Mark

SEC / CISI

3 modules

Core Curriculum

SEC Sri Lanka

T+2

Equities Settlement

CSE 2024

CISI Ethical Principles

CISI Code

Act 19 of 2021

Primary SEC Legislation

Sri Lanka Parliament

The SEC-CISI Diploma in Capital Markets in Sri Lanka has a passing score of 70% per module and costs Rs. 50,000 + £150. It is the premier advanced credential awarded by the SEC Sri Lanka and CISI UK. The program covers corporate finance, portfolio theory, risks in financial services, the SEC Act No. 19 of 2021, CSE rules, CDS operations, and the CISI Code of Conduct. It requires prior CCM or professional qualifications.

Sample SEC-CISI Diploma Practice Questions

Try these sample questions to test your SEC-CISI Diploma exam readiness. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Which of the following capital budgeting techniques is considered the most theoretically sound for evaluating mutually exclusive projects because it directly measures shareholder wealth creation?

A.Internal Rate of Return (IRR)

B.Net Present Value (NPV)

C.Discounted Payback Period

D.Accounting Rate of Return (ARR)

Explanation: Net Present Value (NPV) is the most theoretically sound technique for evaluating capital projects, especially mutually exclusive ones. Unlike IRR, which assumes reinvestment at the IRR itself (which can be unrealistically high), NPV assumes reinvestment at the cost of capital. Furthermore, NPV directly measures the absolute dollar increase in shareholder wealth, avoiding the multiple IRR problem that occurs with non-normal cash flows.

2A Sri Lankan corporate plans to calculate its Weighted Average Cost of Capital (WACC). The company has 70% equity and 30% debt. The cost of equity is 16%, the pre-tax cost of debt is 12%, and the corporate tax rate in Sri Lanka is 30%. What is the firm's WACC?

A.14.80%

B.13.72%

C.12.90%

D.13.12%

Explanation: WACC is calculated as (Weight of Equity * Cost of Equity) + (Weight of Debt * Cost of Debt * (1 - Tax Rate)). WACC = (0.70 * 16%) + (0.30 * 12% * (1 - 0.30)) = 11.20% + (3.60% * 0.70) = 11.20% + 2.52% = 13.72%.

3Which of the following statements best describes the Pecking Order Theory of capital structure?

A.Firms seek an optimal target debt-to-equity ratio by balancing tax shield benefits against bankruptcy costs.

B.Firms prioritize their sources of financing, preferring internal funds first, followed by debt, and finally issuing new equity as a last resort.

C.Modigliani-Miller theorems apply perfectly, meaning the method of financing has no impact on firm value.

D.Firms prefer to issue equity when their shares are overvalued by the stock market to capture a pricing premium.

Explanation: The Pecking Order Theory, suggested by Myers and Majluf, states that asymmetric information leads firms to prefer internal financing (retained earnings) first. If external financing is required, they issue debt next because it signals less uncertainty, and they only issue new equity as a last resort because equity issuance is viewed by the market as a signal of overvaluation.

4A stock currently pays an annual dividend of Rs. 15.00. The dividends are expected to grow at a constant rate of 6% per annum indefinitely. If the required rate of return for investors is 11%, what is the intrinsic value of the stock using the Gordon Growth Model?

A.Rs. 300.00

B.Rs. 318.00

C.Rs. 272.73

D.Rs. 136.36

Explanation: Using the Gordon Growth Model (Constant Growth DDM), Intrinsic Value (V0) = D1 / (ke - g), where D1 = D0 * (1 + g). Here, D1 = Rs. 15.00 * (1 + 0.06) = Rs. 15.90. Required return ke = 11% (0.11), and growth rate g = 6% (0.06). V0 = 15.90 / (0.11 - 0.06) = 15.90 / 0.05 = Rs. 318.00.

5What is the key difference between a Rights Issue and a Capitalization (Bonus) Issue for a company listed on the Colombo Stock Exchange?

A.A Rights Issue increases the company's total equity capital by raising new cash, whereas a Capitalization Issue only reorganizes reserves into share capital without generating cash.

B.A Rights Issue is offered to non-shareholders, while a Capitalization Issue is offered exclusively to existing shareholders.

C.A Rights Issue does not dilute the share price, while a Capitalization Issue significantly dilutes the voting power of major shareholders.

D.A Rights Issue is a non-discretionary corporate action, while a Capitalization Issue requires approval from the Central Bank of Sri Lanka.

Explanation: A Rights Issue is an invitation to existing shareholders to purchase additional new shares at a discount, which brings new cash into the company and increases total equity. A Capitalization (Bonus) Issue distributes additional free shares to existing shareholders by capitalizing the company's retained earnings or reserves, meaning no new capital is raised, and the total book value of equity remains unchanged.

6If a company's Operating Income (EBIT) is Rs. 10 million, its interest expense is Rs. 2 million, and its corporate tax rate is 30%, what is the company's Interest Coverage Ratio?

A.3.5 times

B.4.0 times

C.5.0 times

D.2.8 times

Explanation: The Interest Coverage Ratio is calculated by dividing EBIT by interest expense. Interest Coverage Ratio = EBIT / Interest Expense = Rs. 10 million / Rs. 2 million = 5.0 times. Taxes are not deducted because interest is paid out of pre-tax operating earnings.

7Under the Modigliani-Miller Theorem (Proposition I) with corporate taxes, how does the value of a levered firm (VL) compare to the value of an unlevered firm (VU)?

A.VL is equal to VU, indicating that leverage has no effect on firm value.

B.VL is equal to VU plus the present value of the interest tax shield.

C.VL is equal to VU minus the expected cost of financial distress.

D.VL is less than VU because debt increases the cost of equity exponentially.

Explanation: In Modigliani-Miller Proposition I with corporate taxes, the presence of taxes allows interest payments on debt to be tax-deductible, creating an interest tax shield. Therefore, the value of the levered firm (VL) is equal to the value of the unlevered firm (VU) plus the tax rate (T) multiplied by the value of debt (D) (VL = VU + T * D).

8A Sri Lankan corporate bond has a coupon rate of 12% paid annually, a face value of Rs. 1,000, and 5 years remaining until maturity. If the current market yield (YTM) for similar risk bonds is 10%, how will the market price of the bond relate to its face value?

A.The bond will trade at a discount (below Rs. 1,000).

B.The bond will trade at a premium (above Rs. 1,000).

C.The bond will trade exactly at par (Rs. 1,000).

D.The market price cannot be determined without knowing the corporate tax rate.

Explanation: If a bond's coupon rate (12%) is higher than the current market required yield or Yield to Maturity (10%), the bond becomes attractive to investors. Investors will bid up the price, causing the bond to trade at a premium (above its face value of Rs. 1,000).

9Which of the following represents a primary market transaction in Sri Lanka?

A.An investor purchases shares of John Keells Holdings PLC on the Colombo Stock Exchange (CSE) secondary board.

B.A high-net-worth individual sells corporate debentures to a retail investor via a stockbroker.

C.An investor subscribes to new shares offered by a company through an Initial Public Offering (IPO).

D.A commercial bank buys Treasury bills directly from another commercial bank in the secondary repo market.

Explanation: A primary market transaction involves the creation of new securities where issuers raise capital directly from investors. A subscription to new shares during an Initial Public Offering (IPO) is a classic example. Purchasing or selling existing shares/debentures on the CSE or secondary interbank market represents secondary market transactions.

10What is the theoretical ex-rights price (TERP) of a share if the current market price is Rs. 120.00, and the company makes a 1-for-4 rights issue at a subscription price of Rs. 90.00?

A.Rs. 114.00

B.Rs. 112.50

C.Rs. 108.00

D.Rs. 115.00

Explanation: TERP = [(N * Pcum) + S] / (N + 1), where N is the number of existing shares required (4), Pcum is the cum-rights price (Rs. 120.00), and S is the subscription price (Rs. 90.00). TERP = [(4 * 120) + 90] / (4 + 1) = (480 + 90) / 5 = 570 / 5 = Rs. 114.00.

About the SEC-CISI Diploma Exam

The SEC-CISI Diploma in Capital Markets (DCM) is the premier advanced professional qualification in Sri Lanka's capital market industry. Jointly awarded by the Securities and Exchange Commission (SEC) of Sri Lanka and the Chartered Institute for Securities & Investment (CISI), UK, it validates advanced expertise in corporate finance, technical foundations, wealth and investment management, risk management, and the local regulatory framework. The program is designed for investment advisors, portfolio managers, research analysts, and compliance officers seeking advanced professional status.

Assessment

Computer-based multiple-choice exams and narrative written papers across three core modules

Time Limit

Varies by module (typically 2-3 hours per paper)

Passing Score

70% per module

Exam Fee

Rs. 50,000 + £150 (Securities and Exchange Commission of Sri Lanka (SEC) with the Chartered Institute for Securities & Investment (CISI))

SEC-CISI Diploma Exam Content Outline

30%

Corporate Finance & Technical Foundations

Capital budgeting, NPV, IRR, WACC, capital structure theories, rights issues, capitalization issues, bond yields (YTM, current yield), and corporate governance.

30%

Wealth & Investment Management

Modern Portfolio Theory (MPT), CAPM, security market line, portfolio performance (Sharpe, Treynor, Alpha), derivatives (options, futures, swaps), and unit trusts.

20%

Risks in Financial Services Industry

Credit risk, market risk, operational risk, country risk, sovereign risk, modified duration, bond convexity, Value at Risk (VaR), and portfolio hedging.

20%

Sri Lankan Regulation & CISI Ethics

SEC Act No. 19 of 2021 (market institutions vs intermediaries, compounding of offences, whistleblowing), CSE listing and trading rules, CDS operations, T+2 settlement, AML/CFT guidelines, and the CISI Code of Conduct.

How to Pass the SEC-CISI Diploma Exam

What You Need to Know

Passing score: 70% per module
Assessment: Computer-based multiple-choice exams and narrative written papers across three core modules
Time limit: Varies by module (typically 2-3 hours per paper)
Exam fee: Rs. 50,000 + £150

Keys to Passing

Complete 500+ practice questions
Score 80%+ consistently before scheduling
Focus on highest-weighted sections
Use our AI tutor for tough concepts

SEC-CISI Diploma Study Tips from Top Performers

1Ensure you are fully conversant with the SEC Act No. 19 of 2021, particularly the distinction between market institutions and intermediaries, and market misconduct rules.

2Understand the June 2024 transition to T+2 settlement for equities on the Colombo Stock Exchange (CSE) and T+1/T+2 for debt.

3Practice calculations for WACC, CAPM expected return, rights issues (TERP), portfolio metrics (Sharpe, Treynor, Alpha), and bond duration/convexity.

4Memorize the 8 Principles of the CISI Code of Conduct and apply them to situational ethics questions.

5Master the difference between systematic (market) risk and unsystematic (specific) risk, and how diversification reduces the latter.

Frequently Asked Questions

What is the SEC-CISI Diploma in Capital Markets?

The SEC-CISI Diploma in Capital Markets (DCM) is an advanced professional qualification offered jointly by the SEC of Sri Lanka and the CISI, UK. It serves as the third tier of the SEC's qualification framework, certifying advanced knowledge of corporate finance, investment management, risk, and Sri Lankan securities regulation.

What are the entry prerequisites for the SEC-CISI Diploma?

Candidates must hold either the SEC Certificate in Capital Markets (CCM), a full professional qualification in finance/accounting (such as CA Sri Lanka, CIMA, ACCA, AAT), or a relevant Bachelor's degree (Finance, Banking, Business, Law, Economics) to register for the program.

How many modules are in the SEC-CISI Diploma?

The program consists of three main modules: (1) Corporate Finance and Technical Foundations, (2) Wealth and Investment Management (which awards the CISI International Certificate in Wealth & Investment Management), and (3) Risks in Financial Services Industry (which awards the CISI Risk in Financial Services certificate).

What is the passing score and format of the exams?

The passing mark is 70% for each module. The wealth and risk modules typically use computer-based multiple-choice exams, while the technical foundations module involves narrative written exams. The diploma typically takes 18 months to 2 years to complete.

How much does the SEC-CISI Diploma cost?

The total fee consists of local SEC registration fees (historically around Rs. 50,000) and CISI UK registration/exam fees (approximately £150 per module). Retake fees apply for subsequent attempts.