-
Compared to managers of traditional investments, managers of alternative investments are likely to have fewer restrictions on:
-
Compared to alternative investments, traditional investments tend to:
-
In which category of alternative investments is an investor most likely to use derivatives?
-
An investor who chooses a fund of funds as an alternative to a single hedge fund is most likely to benefit from:
-
In a leveraged buyout, covenants in leveraged loans can:
-
Direct commercial real estate ownership least likely requires investing in:
-
Diversification benefits from adding hedge funds to an equity portfolio may be limited because:
-
A private equity valuation approach that uses estimated multiples of cash flows to value a portfolio company is the:
-
A real estate property valuation would least likely use a (n):
-
A high water mark of ￡150 million was established two years ago for a British hedge fund. The end-of-year value before fees for last year was ￡140 million. This year's end-of-year value before fees is ￡ 155 million. The fund charges "2 and 20." Management fees are paid independently of incentive fees and are calculated on end-of-year values. What is the total fee paid this year?
-
Standard deviation is least likely an appropriate measure of risk for:
-
A commodities market tends to be in backwardation if:
-
The source of return on a long-only commodity investment that represents the change in the spot price over the life of the forward or futures contract used is the:
-
For a commodity market that is in contango, an unchanged spot price over the life of a contract will result in a roll yield that is:
-
A manager following a long-only commodity index strategy is least likely to adjust the portfolio:
-
Which of the following is least likely a similarity between a forward rate agreement based on LIBOR + 1.5% and an interest rate option on LIBOR?
-
Adam Vernon took a long position in four 100-ounce July gold futures contracts at 685 when spot gold was 670. Initial margin is $4,000 per contract and maintenance margin is $3,200 per contract. If the account is marked to market when spot gold is 660 and the futures price is 672, the additional margin the investor must deposit to keep the position open is closest to:
-
The value of a call option on a stock is least likely to increase as a result of:
-
Kurt Crawford purchased shares of Acme, Inc., for $38 and sold call options at $40, covering all his shares for $2 each. The sum of the maximum per-share gain and maximum per-share loss (as an absolute value) on the covered call position is:
-
Craig Grant has entered into a $10 million quarterly-pay equity swap based on the NASDAQ stock index as the 8% fixed rate payer when the index is at 2,750.
Which of the following is most accurate?
-
It is least likely that a forward contract on a zero-coupon bond:
-
Survivorship bias in reported hedge fund index returns will most likely result in index:
-
A hedge fund with a 2 and 20 fee structure has a hard hurdle rate of 5%. If the incentive fee and management fee are calculated independently and the management fee is based on beginning-of-period asset values, an investor's net return over a period during which the gross value of the fund has increased 22% is closest to.
-
Measures of downside risk for asset classes with asymmetric return distributions are least likely to include:
-
The type of real estate index that most likely exhibits sample selection bias is a (n):
-
Which of the following most accurately describes a derivative security?
A derivative:
-
Which of the following statements about exchange-traded derivatives is least accurate?
-
A customized agreement to purchase a certain T-bond next Thursday for $1,000 is:
-
A swap is:
-
A call option gives the holder:
-
Arbitrage prevents:
-
Derivatives are least likely to provide or improve:
-
The short in a deliverable forward contract:
-
On the settlement date of a forward contract:
-
Which of the following statements regarding early termination of a forward contract is most accurate?
-
A dealer in the forward contract market:
-
Which of the following statements regarding equity forward contracts is least accurate?
-
Which of the following statements regarding forward contracts on 90-day T-bills is most accurate?
-
A Eurodollar time deposit:
-
One difference between LIBOR and Euribor is that:
-
Which of the following statements regarding a LIBOR-based FRA is most accurate?
-
Consider a $2 million FRA with a contract rate of 5% on 60-day LIBOR. If 60-day LIBOR is 6% at settlement, the long will:
-
Party A has entered a currency forward contract to purchase €10 million at an exchange rate of $0.98 per euro. At settlement, the exchange rate is $0.97 per euro. If the contract is settled in cash, Party A will:
-
If the quoted discount yield on a 128-day, $1 million T-bill decreases from 3.15% to 3.07%, how much has the holder of the T-bill gained or lost?
-
90-day LIBOR is quoted as 3.58%. How much interest would be owed at maturity for a 90-day loan of $1.5 million at LIBOR + 1.3%?
-
A company treasurer needs to borrow 10 million euros for 180 days, 60 days from now. The type of FRA and the position he should take to hedge the interest rate risk of this transaction are: FRA Position
-
Which of the following statements about futures markets is least accurate?
-
The daily process of adjusting the margin in a futures account is called:
-
A trader buys (takes a long position in) a Eurodollar futures contract ($1 million face value) at 98.14 and closes it out at a price of 98.27. On this contract, the trader has:
-
In the futures market, a contract does not trade for two days because trades are not permitted at the equilibrium price. The market for this contract is:
-
The existence of a delivery option with respect to Treasury bond futures means that the:
-
Assume the holder of a long futures position negotiates privately with the holder of a short futures position to accept delivery to close out both the long and short positions. Which of the following statements about the transaction is most accurate? The transaction is:
-
A conversion factor in a Treasury bond contract is:
-
Three 125,000 euro futures contracts are sold at a price of $1.0234. The next day the price settles at $1.0180. The mark-to-market for this account changes the previous day's margin by:
-
In the futures market, the clearinghouse is least likely to:
-
Funds deposited to meet a margin call are termed:
-
Compared to forward contracts, futures contracts are least likely to be:
-
Which of the following statements about moneyness is least accurate? When:
-
Which of the following statements about American and European options is most accurate?
-
Which of the following statements about put and call options is least accurate?
-
Which of the following statements about options is most accurate?
-
A decrease in the risk-free rate of interest will:
-
A $40 call on a stock trading at $43 is priced at $5. The time value of the option is:
-
Prior to expiration, an American put option on a stock:
-
The owner of a call option on oil futures with a strike price of $68.70:
-
A call option sells for $4 on a $25 stock with a strike price of $30. Which of the following statements is least accurate?
-
An investor buys a put on a stock selling for $60, with a strike price of $55 for a $5 premium. The maximum gain is:
-
Which of the following is the riskiest single-option transaction?
-
An investor will likely exercise a put option when the price of the stock is:
-
A put with a strike price of $75 sells for $10. Which of the following statements is least accurate? The greatest:
-
At expiration, the value of a call option must equal:
-
An investor writes a covered call on a $40 stock with an exercise price of $50 for a premium of $2. The investor's maximum:
-
Which of the following combinations of options and underlying investments have similarly shaped profit/loss diagrams? A:
-
An analyst observes a 5-year, 10% coupon bond with semiannual payments. The face value is ￡ 1,000. How much is each coupon payment?
-
A 20-year, 10% annual-pay bond has a par value of $1,000. What would this bond be trading for if it were being priced to yield 15 % as an annual rate?
-
An analyst observes a 5-year, 10% semiannual-pay bond. The face amount is ￡1,000. The analyst believes that the yield to maturity for this bond should be 15%. Based on this yield estimate, the price of this bond would be:
-
Two bonds have par values of $1,000. Bond A is a 5% annual-pay, 15-year bond priced to yield 8% as an annual rate; the other (Bond B) is a 7.5% annual-pay, 20-year bond priced to yield 6% as an annual rate. The values of these two bonds would be:
Bond A Bond B
-
Bond A is a 15-year, 10.5% semiannual-pay bond priced with a yield to maturity of 8%, while Bond B is a 15-year, 7% semiannual-pay bond priced with the same yield to maturity. Given that both bonds have par values of $1,000, the prices of these two bonds would be:
Bond A Bond B
-
Treasury spot rates (expressed as semiannual-pay yields to maturity) are as follows: 6 months = 4%, 1 year = 5%, 1.5 years = 6%. A 1.5-year, 4% Treasury note is trading at $965. The arbitrage trade and arbitrage profit are:
-
A $1, 000, 5%, 20-year annual-pay bond has a yield of 6.5%. If the yield remains unchanged, how much will the bond value increase over the next three years?
-
The value of a 17-year, zero-coupon bond with a maturity value of $100,000 and a semiannual-pay yield of 8.22% is closest to:
-
Based on semiannual compounding, what would the YTM be on a 15-year, zero-coupon, $1,000 par value bond that's currently trading at $331.40?
-
An analyst observes a bond with an annual coupon that's being priced to yield 6.350%. What is this issue's bond equivalent yield?
-
An analyst determines that the cash flow yield of GNMA Pool 3856 is 0.382% per month. What is the bond equivalent yield?
-
If the YTM equals the actual compound return an investor realizes on an investment in a coupon bond purchased at a premium to par, it is least likely that:
-
The 4-year spot rate is 9.45%, and the 3-year spot rate is 9.85%. What is the 1-year forward rate three years from today?
-
An investor purchases a bond that is putable at the option of the holder. The option has value. He has calculated the Z-spread as 223 basis points. The option-adjusted spread will be:
-
A bond's nominal spread, zero-volatility spread, and option-adjusted spread will all be equal for a coupon bond if：
-
The zero-volatility spread will be zero:
-
Assume the Treasury spot-rate yield curve is upward sloping. Compared to the nominal yield spread between a Treasury bond and an option-free corporate bond of similar maturity, the Z-spread will be:
-
Why is the price/yield profile of a callable bond less convex than that of an otherwise identical option-free bond? The price:
-
The 4.65% semiannual-pay Portage Health Authority bonds have exactly 17 years to maturity and are currently priced to yield 4.39%. Using the full valuation approach, the interest rate exposure (in percent of value) for these bonds, given a 75 basis point increase in required yield, is closest to:
-
A 14% semiannual-pay coupon bond has six years to maturity. The bond is currently trading at par. Using a 25 basis point change in yield, the effective duration of the bond is closest to:
-
Suppose that the bond in Question 3 is callable at par today. Using a 25 basis point change in yield, the bond's effective duration assuming that its price cannot exceed 100 is closest to:
-
The modified duration of a bond is 7.87. The percentage change in price using duration for a yield decrease of 110 basis points is closest to:
-
A bond has a convexity of 57.3. The convexity effect if the yield decreases by 110 basis points is closest to:
-
Assume a bond has an effective duration of 10.5 and a convexity of 97.3. Using both of these measures, the estimated percentage change in price for this bond, in response to a decline in yield of 200 basis points, is closest to:
-
An analyst has determined that if market yields rise by 100 basis points, a certain high-grade corporate bond will have a convexity effect .of 1.75%. Further, she's found that the total estimated percentage change in price for this bond should be -13.35%. Given this information, it follows that the bond's percentage change in price due to duration is:
-
The total price volatility of a typical noncallable bond can be found by:
-
The current price of a $1, 000, 7-year, 5.5% semiannual coupon bond is $1,029.23. The bond's PVBP is closest to:
-
The effect on a bond portfolio's value of a decrease in yield would be most accurately estimated by using:
-
An analyst has noticed lately that the price of a particular bond has risen less when the yield falls by 0.1% than the price falls when rates increase by 0.1%. She could conclude that the bond:
-
Which of the following measures is lowest for a currently callable bond?
-
Expected loss can decrease with an increase in a bond's:
-
Absolute priority of claims in a bankruptcy might be violated because:
-
"Notching" is best described as a difference between a (n):
-
Which of the following statements is least likely a limitation o f relying on ratings from credit rating agencies?
-
Ratio analysis is most likely used to assess a borrower's:
-
Higher credit risk is indicated by a higher:
-
Compared to other firms in the same industry, an issuer with a credit rating of AAA should have a lower:
-
Credit spreads tend to widen as:
-
Compared to shorter duration bonds, longer duration bonds:
-
One key difference between sovereign bonds and municipal bonds is that sovereign issuers:
-
An estimate of the price change for an option-free bond caused by a 1% decline in its yield to maturity based only on its modified duration will result in an answer that:
-
Three companies in the same industry have exhibited the following average ratios over a 5-year period:
Based only on the information given, the company that is expected to have the highest credit rating is:
-
Which statement about the theories of the term structure of interest rates is most accurate?
-
Which of the following is least likely a common form of external credit enhancement?
-
A bond with an embedded put option has a modified duration of 7, an effective duration of 6 and a convexity of 62.5. If interest rates rise 25 basis points, the bond's price will change by approximately:
-
Which of the following bonds would be the best one to own if the yield curve shifts down by 50 basis points at all maturities?
-
Which of the following provisions would most likely decrease the yield to maturity on a debt security?
-
Other things equal, a corporate bond's yield spread is likely to be most volatile if the bond is rated:
-
The effects of a decrease in interest rate (yield) volatility o n the market yield of a debt security with a prepayment option and on a debt security with a put option are most likely a (n):
Prepayment option Put option
-
Bond A has an embedded option, a nominal yield spread to Treasuries of 1.6%, a zero-volatility spread of 1.4%, and an option-adjusted spread of 1.2%. Bond B is identical to Bond A except that it does not have the embedded option, has a nominal yield spread to Treasuries of 1.4%, a zero-volatility spread of 1.3%, and an option-adjusted spread of 1.3%. The most likely option embedded in Bond A, and the bond that is the better value, are:
Embedded option Better value
-
A bank loan department is trying to determine the correct rate for a 2-year loan to be made two years from now. If current implied Treasury effective annual spot rates are: 1-year = 2%, 2-year = 3%, 3-year = 3.5%, 4-year = 4.5%, the base (risk-free) forward rate for the loan before adding a risk premium is closest to:
-
Compared to mortgage passthrough securities, CMOs created from them most likely have:
-
The arbitrage-free approach to bond valuation most likely:
-
Which of the following statements least accurately describes a form of risk associated with investing in fixed income securities?
-
A bond's indenture:
-
A bond has a par value of $5,000 and a coupon rate of 8.5% payable semiannually. What is the dollar amount of the semiannual coupon payment?
-
From the perspective of the bondholder, which of the following pairs of options would add value to a straight (option-free) bond?
-
A 10-year bond pays no interest for three years, then pays $229.25, followed by payments of $35 semiannually for seven years and an additional $1,000 at maturity. This bond is a:
-
Consider a $1 million semiannual-pay, floating-rate issue where the rate is reset on January 1 and July 1 each year. The reference rate is 6-month LIBOR, and the stated margin is +1.25%. If 6-month LIBOR is 6.5% on July 1, what will the next semiannual coupon be on this issue?
-
Which of the following statements is most accurate with regard to floating-rate issues that have caps and floors?
-
An investor paid a full price of $1,059.04 each for 100 bonds. The purchase was between coupon dates, and accrued interest was $23.54 per bond. What is each bond's clean price?
-
Which of the following statements is most accurate with regard to a call provision?
-
Which of the following most accurately describes the maximum price for a currently callable bond?
-
An investor buying bonds on margin:
-
Which of the following is least likely a provision for the early retirement of debt by the issuer?
-
A mortgage is least likely.
-
A bond with a 7.3% yield has a duration of 5.4 and is trading at $985. If the yield decreases to 7.1%, the new bond price is closest to:
-
If interest rate volatility increases, which of the following bonds will experience a price decrease?
-
A noncallable, AA-rated, 5-year zero-coupon bond with a yield of 6% is least likely to have:
-
The current price of a bond is 102.50. If interest rates change by 0.5%, the value of the bond price changes by 2.50. What is the duration of the bond?
-
Which of the following bonds has the greatest interest rate risk?
-
A floating-rate security will have the greatest duration:
-
The duration of a bond is 5.47, and its current price is $986.30. Which of the following is the best estimate of the bond price change if interest rates increase by 2%?
-
A straight 5% bond has two years remaining to maturity and is priced at $981.67. A callable bond that is the same in every respect as the straight bond, except for the call feature, is priced at $917.60. With the yield curve flat at 6%, what is the value of the embedded call option?
-
A straight 5% coupon bond has two years remaining to maturity and is priced at $981.6($1,000 par value). A putable bond, which is the same in every respect as the straight bond except for the put provision, is priced at 101.76 (percent of par value). With the yield curve flat at 6%, what is the value of the embedded put option?
-
Which of the following is least likely to fall under the heading of event risk with respect to fixed-income securities?
-
Which of the following 5-year bonds has the highest interest rate risk?
-
An investor is concerned about interest rate risk. Which of the following three bonds (similar except for yield and maturity) has the least interest rate risk? The bond with:
-
Which of the following statements about the risks of bond investing is most accurate?
-
Which of the following securities will have the least reinvestment risk for a long-term investor?
-
A 2-year, zero-coupon U.S. Treasury note is least likely to have:
-
A Treasury security is quoted at 97-17 and has a par value of $100,000. Which of the following is its quoted dollar price?
-
An investor holds $100,000 (par value) worth of Treasury Inflation Protected Securities (TIPS) that carry a 2.5% semiannual pay coupon. If the annual inflation rate is 3%, what is the inflation-adjusted principal value of the bond after six months?
-
An investor holds $100,000 (par value) worth of TIPS currently trading at par. The coupon rate of 4% is paid semiannually, and the annual inflation rate is 2.5%. What coupon payment will the investor receive at the end of the first six months?
-
A Treasury note (T-note) principal strip has six months remaining to maturity. How is its price likely to compare to a 6-month Treasury bill (T-bill) that has just been issued? The T-note price should be:
-
Which of the following statements about Treasury securities is most accurate?
-
Which of the following municipal bonds typically has the greater risk and is issued with higher yields?
-
A bond issue that is serviced with the earnings from a pool of Treasury securities that have been placed in escrow is called a(n):
-
Of the following, the debt securities that are most often registered according to the requirements of SEC Rule 415 (shelf registration) are:
-
A corporation issuing asset-backed securities can often improve the credit rating of the securities to above that of the issuing company by transferring the assets to a(n):
-
Which of the following is a difference between an on-the-run and an off-the-run issue? An on-the-run issue:
-
Compared to a public offering, a private placement of debt securities likely has:
-
Compared to negotiable CDs, bankers acceptances:
-
A debt security that is collateralized by a pool of the sovereign debt of several developing countries is most likely a (n):
-
Activities in the primary market for debt securities would least likely include:
-
Under the pure expectations theory, an inverted yield curve is interpreted as evidence that:
-
According to the liquidity preference theory, which of the following statements is least accurate?
-
With respect to the term structure of interest rates, the market segmentation theory holds that:
-
The most commonly used tool of the Fed to control interest rates is:
-
For two bonds that are alike in all respects except maturity, the relative yield spread is 7.14%. The yield ratio is closest to:
-
Assume the following yields for different bonds issued by a corporation:
·1-year bond: 5.50%.
·2-year bond: 6.00%.
·3-year bond: 7.00%.
If a 3-year U.S. Treasury is yielding 5%, then what is the absolute yield spread on the 3-year corporate issue?
-
Assume the following corporate yield curve:
·1-year bond: 5.00%.
·2-year bond: 6.00%.
·3-year bond: 7.00%.
If a 3-year U.S. Treasury yielding 6% is the benchmark bond, the relative yield spread on the 3-year corporate is:
-
If a U.S. investor is forecasting that the yield spread between U.S. Treasury bonds and U.S. corporate bonds is going to widen, which of the following beliefs would he be also most likely to hold?
-
For a Treasury bond and a corporate bond that are alike in all respects except credit risk, the yield ratio is 1.0833. If the yield on the corporate bond is 6.5%, the Treasury (benchmark) bond yield is closest to:
-
Given two bonds that are equivalent in all respects except tax status, the marginal tax rate that will make an investor indifferent between an 8.2% taxable bond and a 6.2% tax-exempt bond is closest to:
-
Which of the following statements most accurately describes the relationship between the economic health of a nation and credit spreads?
-
Which of the following most accurately describes the relationship between liquidity and yield spreads relative to Treasury issues? All else being equal, bonds with:
-
A narrowing of credit spreads would have the least impact on the value of which of the following investments?
-
Assume an investor is in the 31% marginal tax bracket. She is considering the purchase of either a 7.5% corporate bond that is selling at par or a 5.25% tax-exempt municipal bond that is also selling at par. Given that the two bonds are comparable in all respects except their tax status, the investor should buy the:
-
Which of the following best describes the benefit of cumulative share voting?
-
The advantage of participating preferred shares versus non-participating preferred shares is that participating preferred shares can:
-
Compared to public equity, which of the following is least likely to characterize private equity?
-
Global depository receipts are most often denominated in:
-
Which of the following types of preferred shares has the most risk for investors?
-
Which of the following best describes the book value of equity?
-
Which of the following causes of an increase in return on equity is most likely a positive sign for a firm's equity investors?
-
Industry classification systems from commercial index providers typically classify firms by:
-
Firms and industries are most appropriately classified as cyclical or non-cyclical based on:
-
An analyst should most likely include two firms in the same peer group for analysis if the firms:
-
The industry experience curve shows the cost per unit relative to:
-
Greater pricing power is most likely to result from greater:
-
Which of the following statements best describes the relationship between pricing power and ease of entry and exit? Greater ease of entry:
-
Industry overcapacity and increased cost cutting characterize which stage of the industry life cycle?
-
Which of the following is least likely a significant external influence on industry growth ?
-
Which of the following is least likely an element of an industry strategic analysis?
-
Which of the following best describes a low-cost competitive strategy?
-
An analyst estimates a value of $45 for a stock with a market price of $50. The analyst is most likely to conclude that a stock is overvalued if:
-
An analyst estimates that a stock will pay a $2 dividend next year and that it will sell for $40 at year-end. If the required rate of return is 15%, what is the value of the stock?
-
What would an investor be willing to pay for a share of preferred stock that pays an annual $7 dividend if the required return is 7.75%?
-
The constant growth model requires which of the following?
-
What is the intrinsic value of a company's stock if dividends are expected to grow at 5%, the most recent dividend was $1, and investors' required rate of return for this stock is 10%?
-
Next year's dividend is expected to be $2, g = 7%, and k = 12%. What is the stock's intrinsic value?
-
The XX Company paid a $1 dividend in the most recent period. The company is expecting dividends to grow at a 6% rate into the future. What is the value of this stock if an investor requires a 15% rate of return on stocks of this risk class?
-
Assume that a stock is expected to pay dividends at the end of Year 1 and Year 2 of $1.25 and $1.56, respectively. Dividends are expected to grow at a 5% rate thereafter. Assuming that ke is 11%, the value of the stock is closest to:
-
An analyst feels that Brown Company's earnings and dividends will grow at 25% for two years, after which growth will fall to a constant rate of 6%. If the projected discount rate is 10%, and Brown's most recently paid dividend was $1, the value of Brown's stock using the multistage dividend discount model is closest to:
-
A firm has an expected dividend payout ratio of 60% and an expected future growth rate of 7%. What should the firm's fundamental price-to-earnings (P/E) ratio be if the required rate of return on stocks of this type is 15%?
-
Which of the following firms would most likely be appropriately valued using the constant growth DDM?
-
Which of the following is least likely a rationale for using price multiples?
-
Which of the following firms would most appropriately be valued using an asset-based model?
-
An investor purchased 550 shares of Akley common stock for $38,500 in a margin account and posted initial margin of 50%. The maintenance margin requirement is 35%. The price of Akley, below which the investor would get a margin call, is closest to:
-
Adams owns 100 shares of Brikley stock, which is trading at $86 per share, and Brown is short 200 shares of Brikley. Adams wants to buy 100 more shares if the price rises to $90, and Brown wants to cover his short position and take profits if the price falls to $75. The orders Adams and Brown should enter to accomplish their stated objectives are:
Adams Brown
-
Which of the factors that determine the intensity of industry competition is most likely to be affected by the presence of significant economies of scale?
-
Price-to-book value ratios are most appropriate for measuring the relative value of a:
-
An index of three non-dividend paying stocks is weighted by their book values of equity. After one year, the stock with the largest weight is down 15 %, the next-largest is down 10%, and the smallest is down 5%. The total return of this index for the year is:
-
Financial intermediaries that buy securities from and sell securities to investors are best described as:
-
Among the types of assets that trade in organized markets, asset-backed securities are best characterized as:
-
Which of the following market indexes is likely to be reconstituted most frequently? An index that is designed to measure:
-
Rogers Partners values stocks using a dividend discount model and the CAPM. Holding all other factors constant, which of the following is least likely to increase the estimated value of a stock?
-
Brandy Clark, CFA, has forecast that Aceler, InC., will pay its first dividend two years from now in the amount of $1.25. For the following year she forecasts a dividend of $2.00 and expects dividends to increase at an average rate of 7% for the foreseeable future after that. If the risk-free rate is 4.5%, the market risk premium is 7.5%, and Aceler's beta is 0.9, Clark would estimate the current value of Aceler shares as being closest to:
-
An arbitrageur buys a security on a European exchange, where it is quoted in euros, and simultaneously sells the same security on a U.S. exchange, where it is quoted in dollars. The security is most likely a:
-
Under what financial market conditions can active portfolio management outperform a passive index tracking strategy consistently over time? Active management:
-
Daniel France is concerned that a long-term bond he holds might default. He therefore buys a contract that will compensate him in the case of default.
What type of contract does he hold?
-
A financial intermediary buys a stock and then resells it a few days later at a higher price. Which intermediary would this most likely describe?
-
Which of the following is most similar to a short position in the underlying asset?
-
An investor buys 1,000 shares of a stock on margin at a price of $50 per share. The initial margin requirement is 40% and the margin lending rate is 3%. The investor's broker charges a commission of $0.01 per share on purchases and sales. The stock pays an annual dividend of $0.30 per share. One year later, the investor sells the 1,000 shares at a price of $56 per share. The investor's rate of return is closest to:
-
A stock is selling at $50．An investor's valuation model estimates its intrinsic value to be $40．Based on her estimate, she would most likely place a:
-
Which of the following limit buy orders would be the most likely to go unexecuted?
-
New issues of securities are transactions in the:
-
In which of the following types of markets do stocks trade any time the market is open?
-
A market is said to be informational efficient if it features:
-
Which of the following would least likely be an objective of market regulation?
-
Market float of a stock is best described as its:
-
For which of the following indexes will rebalancing occur most frequently?
-
Which of the following would most likely represent an inappropriate use of an index?
-
Which of the following is least accurate regarding fixed income indexes?
-
Most of the widely used global security indexes are:
-
In an informational efficient capital market:
-
In terms of market efficiency, short selling most likely:
-
The intrinsic value of an asset:
-
The weak-form EMH asserts that stock prices fully reflect which of the following types of information?
-
Research has revealed that the performance of professional money managers tends to be:
-
Which of the following best describes the majority of the evidence regarding anomalies in stock returns?
-
Investors who exhibit loss aversion most likely：
-
Compared to investing in a single security, diversification provides investors a way to:
-
Portfolio diversification is least likely to protect against losses:
-
In a defined contribution pension plan:
-
Low risk tolerance and high liquidity requirements best describe the typical investment needs of a(n):
-
A long time horizon and low liquidity requirements best describe the investment needs of a(n):
-
Which of the following is least likely to be considered an appropriate schedule for reviewing and updating an investment policy statement?
-
A top-down security analysis begins by:
-
Compared to exchange-traded funds (ETFs), open-end mutual funds are typically associated with lower:
-
Both buyout funds and venture capital funds:
-
Hedge funds most likely:
-
An investor buys a share of stock for $40 at time t = 0, buys another share of the same stock for $50 at t = 1, and sells both shares for $60 each at t = 2. The stock paid a dividend of $1 per share at t = 1 and at t = 2. The periodic money-weighted rate of return on the investment is closest to:
-
Which of the following asset classes has historically had the highest returns and standard deviation?
-
In a 5-year period, the annual returns on an investment are 5%, －3%, －4%,2%, and 6%. The standard deviation of annual returns on this investment is closest to:
-
A measure of how the returns of two risky assets move in relation to each other is the:
-
Which of the following statements about correlation is least accurate?
-
The standard deviation of returns is 0.30 for Stock A and 0.20 for Stock B. The covariance between the returns of A and B is 0.006. The correlation of returns between A and B is:
-
Which of the following statements about risk-averse investors is most accurate? A risk-averse investor:
-
Which of the following statements about covariance and correlation is least accurate?
-
Which of the following available portfolios most likely falls below the Markowitz efficient frontier?
Portfolio Expected return Expected standard deviation
-
The capital allocation line is a straight line from the risk-free asset through the:
-
An investor put 60% of his portfolio into a risky asset offering a 10 % return with a standard deviation of returns of 8% and put the balance of his portfolio in a risk-free asset offering 5%. What is the expected return and standard deviation of his portfolio?
Expected return Standard deviation
-
What is the risk measure associated with the capital market line (CML)?
-
A portfolio to the right of the market portfolio on the CML is:
-
As the number of stocks in a portfolio increases, the portfolio's systematic risk:
-
Total risk equals:
-
A return generating model is least likely to be based on a security's exposure to:
-
The covariance of the market's returns with a stock's returns is 0.005 and the standard deviation of the market's returns is 0.05. What is the stock's beta?
-
The covariance of the market's returns with the stock's returns is 0.008. The standard deviation of the market's returns is 0.08, and the standard deviation of the stock's returns is 0.11. What is the correlation coefficient of the returns of the stock and the returns of the market?
-
According to the CAPM, what is the expected rate of return for a stock with a beta of 1.2,when the risk-free rate is 6% and the market rate of return is 12%?
-
According to the CAPM, what is the required rate of return for a stock with a beta of 0.7, when the risk-free rate is 7% and the expected market rate of return is 14%?
-
The risk-free rate is 6%, and the expected market return is 15%. A stock with a beta of 1.2 is selling for $25 and will pay a $1 dividend at the end of the year. If the stock is priced at $30 at year-end, it is:
-
A stock with a beta of 0.7 currently priced at $50 is expected to increase in price to $55 by year-end and pay a $1 dividend. The expected market return is 15%, and the risk-free rate is 8%. The stock is:
-
Which of the following statements about the SML and the CML is least accurate?
-
The investment policy statement is most accurately considered the:
-
The component of an investment policy statement that defines the investment objectives is most likely to include information about:
-
A client exhibits an above-average willingness to take risk but a below-average ability to take risk. When assigning an overall risk tolerance, the investment adviser is most likely to assess the client's overall risk tolerance as:
-
Which of the following is least likely an example of a portfolio constraint?
-
In determining the appropriate asset allocation for a client's investment account, the manager should:
-
Which of the following activities is most likely to be performed as part of the execution step of the portfolio management process?
-
A manager who evaluates portfolios' investment performance adjusted for systematic risk is most likely to rank portfolios based on their:
-
According to the capital asset pricing model:
-
Beta is best described as the:
-
According to Markowitz portfolio theory:
-
An analyst has estimated that the returns for an asset, conditional on the performance of the overall economy, are:
The conditional expected returns on the market portfolio are:
According to the CAPM, if the risk-free rate is 5% and the risky asset has a beta of 1.1, with respect to the market portfolio, the analyst should:
-
Which of the following statements concerning the principles underlying the capital budgeting process is most accurate?
-
Which of the following statements about the payback period method is least accurate? The payback period:
-
Which of the following statements about NPV and IRR is least accurate?
-
Which of the following statements is least accurate? The discounted payback period:
-
Which of the following statements about NPV and IRR is least accurate?
-
An analyst has gathered the following information about a project:
·Cost $10,000
·Annual cash inflow $4,000
·Life 4years
·Cost of capital 12%
Which of the following statements about the project is least accurate?
-
The NPV profiles of two Projects will intersect:
-
The post-audit is used to:
-
Based on surveys of comparable firms, which of the following firms “would be most likely to use NPV as its preferred method for evaluating capital projects?
-
Fallen Machinery is investing $400 million in new industrial equipment. The present value of the future after-tax cash flows resulting from the equipment is $700 million. Fallen currently has 200 million shares of common stock outstanding, with a current market price of $36 per share. Assuming that this project is new information and is independent of other expectations about the company, what is the theoretical effect of the new equipment on Fullen's stock price? The stock price will:
-
A company has $5 million in debt outstanding with a coupon rate of 12%. Currently, the yield to maturity (YTM) on these bonds is 14%. If the firm's tax rate is 40%, what is the company's after-tax cost of debt?
-
The cost of preferred stock is equal to:
-
A company's $100, 8% preferred is currently selling for $85. What is the company's cost of preferred equity?
-
The expected dividend is $2.50 for a share of stock priced at $25. What is the cost of equity if the long-term growth in dividends is projected to be 8%?
-
An analyst gathered the following data about a company:
Capital structure Required rate of return
30% debt 10% for debt
20% preferred stock 11% for preferred stock
50% common stock 18% for common stock
Assuming a 40% tax rate, what after-tax rate of return must the company earn on its investments?
-
A company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required return on debt is 9% and 14% for equity. If the company is in the 40% tax bracket, the company's marginal cost of capital is closest to:
-
Given the following information on a company's capital structure, what is the company's weighted average cost of capital? The marginal tax rate is 40%.
Type of capital Percent of capital structure Before-tax component cost
Bonds 40% 7.5%
Preferred stock 5% 11%
Common stock 55% 15%
-
Derek Ramsey is an analyst with Bullseye Corporation, a major U.S.-based discount retailer. Bullseye is considering opening new stores in Brazil and wants to estimate its cost of equity capital for this investment. Ramsey has found that:·The yield on a Brazilian government 10-year U.S. dollar-denominated bond is 7.2%.·A 10-year U.S. Treasury bond has a yield of 4.9%.·The annualized standard deviation of the Sao Paulo Bores stock index in the most recent year is 24%.·The annualized standard deviation of Brazil's U.S. dollar-denominated 10-year government bond over the last year was 18%.·The appropriate beta to use for the project is 1.3.·The market risk premium is 6%.·The risk-flee interest rate is 4.5%.Which of the following choices is closest to the appropriate country risk premium for Brazil and the cost of equity that Ramsey should use in his analysis?Country risk premium for Brazil Cost of equity for Project
-
Manigault Industries currently has assets on its balance sheet of $200 million that are financed with 70% equity and 30% debt. The executive management team at Manigault is considering a major expansion that would require raising additional capital. Rosannna Stallworth, the CFO of Manigault, has put together the following schedule for the costs of debt and equity:
In a presentation to Manigault's Board of Directors, Stallworth makes the following statements:Statement 1: If we maintain our target capital structure of 70% equity and 30% debt, the break point at which our cost of equity will increase to 8.0% is $185 million in new capital.
Statement 2: If we want to finance total assets of $450 million, our marginal cost of capital will increase to 7.56%. Are Stallworth's Statements 1 and 2 most likely correct or incorrect?
Statement 1 Statement 2
-
Black Pearl Yachts is considering a project that requires a $180,000 cash outlay and is expected to produce cash flows of $50,000 per year for the next five years. Black Pearl's tax rate is 25%, and the before-tax cost of debt is 8%. The current share price for Black Pearl's stock is $56 and the expected dividend next year is $2.80 per share. Black Pearl's expected growth rate is 5%. Assume that Black Pearl finances the project with 60% equity and 40% debt, and the flotation cost for equity is 4.0%. The appropriate discount rate is the weighted average cost of capital (WACC). Which of the following choices is closest to the dollar amount of the flotation costs and the NPV for the project, assuming that flotation costs are accounted for properly?
Dollar amount of flotation costs NPV of Project
-
Jay Company has a debt-to-equity ratio of 2.0. Jay is evaluating the cost of equity for a project in the same line of business as Cass Company and will use the pure-play method with Cass as the comparable firm. Cass has a beta of 1.2 and a debt-to-equity ratio of 1.6. The project beta most likely:
-
Business risk is the combination of:
-
Which of the following is a key determinant of operating leverage?
-
Which of the following statements about capital structure and leverage is most accurate?
-
Jaycee, Inc., sells blue ink for $4 a bottle. The ink's variable cost per bottle is $2. Ink has fixed operating costs of $4,000 and fixed financing costs of $6,000. What is Jaycee's breakeven quantity of sales, in units?
-
Jaycee, Inc., sells blue ink for $4 a bottle. The ink's variable cost per bottle is $2. Ink has fixed operating costs of $4,000 and fixed financing costs of $6,000. What is Jaycee's operating breakeven quantity of sales, in units?
-
If Jaycee's sales increase by 10%, Jaycee's EBIT increases by 15%. If Jaycee' s EBIT increases by 10%, Jaycee's EPS increases by 12%. Jaycee's degree of operating leverage (DOL) and degree of total leverage (DTL) are closet to:
-
Vischer Concrete has $1.2 million in assets that are currently financed with 100% equity. Vischer's EBIT is $300,000, and its tax rate is 30%. If Vischer changes its capital structure (recapitalizes) to include 40% debt, what is Vischer's ROE before and after the change? Assume that the interest rate on debt is 5%.
ROE at 100% equity ROE at 60% equity
-
Which of the following is most likely to increase share holders' wealth?
-
Which of the following is most accurate? The purchaser of a stock will not receive the dividend if the stock was purchased on or after the:
-
A share repurchase that begins with a company communicating to shareholders a specific number of shares and a range of acceptable prices is most likely to be a(n):
-
If a company's after-tax borrowing rate is greater than the company's earning yield when the company repurchases stock with borrowed money, going forward, the earnings per share is most likely to:
-
After a share repurchase, book value per share is most likely to increase if, pre-purchase, BVPS was:
-
A company is considering either an open market share repurchase or a cash dividend of an equal amount. Compared to the open market share repurchase, the cash dividend is most likely to:
-
Studdard Controls recently declared a quarterly dividend of $1.25 payable on Thursday, April 25, to holders of record on Friday, April 12. What is the last day an investor could purchase Studdard stock and still receive the quarterly dividend?
-
Arizona Seafood, Inc., plans $45 million in new borrowing to repurchase 3,600,000 shares at their market price of $12.50. The yield on the new debt will be 12%. The company has 36 million shares outstanding and EPS of $0.60 before the repurchase. The company's tax rate is 40%. The company's EPS after the share repurchase will be closest to:
-
Northern Financial Co. has a BVPS of $5. The company has announced a $15 million share buyback. The share price is $60 and the company has 40 million shares outstanding. After the share repurchase, the company's BVPS will be closest to:
-
Firm A and Firm B have the same quick ratio, but Firm A has a greater current ratio than Firm B. Compared to Firm B, it is most likely that Firm A has:
-
An increase in Rowley Corp's cash conversion cycle and a decrease in Rowley's operating cycle could result from:
Cash conversion cycle 
Operating cycle 
-
An example of a primary source of liquidity is:
-
Which of the following statements most accurately describes a key aspect of managing a firm's net daily cash position?
-
Boyle, Inc., just purchased a banker's acceptance for $25,400. It will mature in 80 days for $26,500．The discount-basis yield and the bond equivalent yield for this security are closest to:
Discount-basis Bond equivalent
-
Blonnick Corp. has found that its weighted average collection period has increased from 50 days last year to 55 days this year, and its average days of receivables this year is 48 compared to 52 last year. It is most likely that:
-
Chapmin Corp. is a large domestic services firm with a good credit rating. The source of short-term financing it would most likely use is:
-
Which of the following board characteristics would least likely be an indication of high-quality corporate governance?
-
Which of the following board members would most likely be considered well chosen based on the principles of good corporate governance?
-
Which of the following is least likely to enable a corporate board to exercise its duty by acting in the long-term interest of shareholders?
-
Which of the following would most likely be considered a negative factor in assessing the suitability of a board member? The board member:
-
Which of the following would least likely be an indication of poor corporate governance?
-
Which of the following would most likely be considered a poor corporate practice in terms of promoting shareholder interests?
-
Two analysts are discussing shareholder defenses against hostile takeovers. Alice states, “It is positive for shareholders that the board has shown a willingness to buy back shares from holders who may be in a position to effect a hostile takeover of the firm at less than its long-term value to shareholders.” Bradley states, “Firms that are likely takeover targets should offer valuable exit packages in the event of a hostile takeover because they are necessary to recruit highly talented top executives, such as the CEO.” From the perspective of good corporate governance, are these statements correct?
-
An analyst calculates the following leverage ratios for Burkhart Company and Dutchin Company:
If both companies' sales increase by 5%, what are the most likely effects on the companies' earnings before interest and taxes (EBIT) and earnings per share (EPS)?
-
Which of the following would most likely lead to an increase in a typical firm's capital investment for the current period?
-
Which of the following changes in a firm's working capital management is most likely to result in a shorter operating cycle?
-
A company's operations analyst is evaluating a plant expansion project that is likely to be financed in part by issuing new common equity. Flotation costs are expected to be 4% of the amount of new equity capital raised. The most appropriate way for the analyst to treat the flotation costs is to:
-
A board of directors is most likely to act in the long-term interest of shareholders if:
-
The manufacturer of Paw Detergent has developed New Improved Paw with Dirt eaters and is considering adding it to its product line. New Improved Paw would sell at a premium price compared to Paw. In order to manufacture New Improved Paw, the firm will need to build a new facility and purchase new equipment. Which of the following is least likely included when calculating the appropriate cash flows for analysis of whether to add New Improved Paw to its product line?
-
Acme Corp. has reported the following financial ratios for the past two years:
Based only on these results, an analyst would most correctly conclude that the results in year 20X1 compared to those in year 20X0 indicate that Acme's ROE has:
-
The use of secondary sources of liquidity would most likely be considered:
-
A firm's debt-to-equity ratio is most likely to increase as a result of a(n):
-
A firm is evaluating two mutually exclusive projects of the same risk class, Project X and Project Y. Both have the same initial cash outlay and both have positive NPVs. Which of the following is a sufficient reason to choose Project X over Project Y?
-
Which of the following is least likely to be a motivation to over report net income?
-
Which of the following is most likely an example of accounting fraud?
-
The "fraud triangle" consists of:
-
Competitive threats to the profitability or financial stability of a firm are best categorized as an accounting fraud risk factor related to:
-
According to Statement on Auditing Standards No.99, Consideration of Fraud in a Financial Statement Audit, which of the following is least likely to be a risk factor related to opportunities to commit fraudulent accounting?
-
Accounting fraud risk factors related to attitudes and rationalizations are least likely to include:
-
Which of the following actions is least likely to immediately increase earnings?
-
Decreasing accounts payable turnover by delaying payments to suppliers is most likely to cause cash flow from financing activities to:
-
As part of its working capital management program, Rotan Corporation has an accounts payable financing arrangement with the First National Bank. The bank pays Rotan's vendors within 30 days of the invoice date. Rotan reimburses the bank 90 days after the invoice is due. Ignoring interest, what is the most likely effect on Rotan's operating cash flow and financing cash flow when the bank is repaid?
-
In order to generate cash, Company L securitized its accounts receivable through a special purpose entity. Company M pledged its accounts receivable to a local bank in order to secure a short-term loan. Assuming Company L and Company M are identical in all other respects, which company has higher operating cash flow and which company has higher financing cash flow?
Higher operating cash flow Higher financing cash flow
-
Over the past two years, a firm reported higher operating cash flow as a result of securitizing its accounts receivable and from increasing income tax benefits from employee stock options. The tax benefits are solely the result of higher tax rates. What should an analyst conclude about the sustainability of these two sources of operating cash flow?
-
The table below shows selected data from a company's financial statements.
Based on these results, what was this company's most likely strategy for improving its operating activity during this period?
-
An analyst who is projecting a company's net income and cash flows is least likely to assume a constant relationship between the company's sales and its:
-
Credit analysts are likely to consider a company's credit quality to be improving if the company reduces its:
-
Which of the following stock screens is most likely to identify stocks with high earnings growth rates?
-
An analyst needs to compare the financial statements of Firm X and Firm Y. Which of the following differences in the two firms' financial reporting is least likely to require the analyst to make an adjustment?
Firm X Firm Y
-
When comparing a firm that uses LIFO inventory accounting to firms that use FIFO, an analyst should:
-
The ratio of a firm's property, plant, and equipment, net of accumulated depreciation, to its annual depreciation expense is best interpreted as an estimate of the
-
How should an analyst most appropriately adjust the financial statements of a firm that uses operating leases to finance its plant and equipment?
-
The fundamental qualitative characteristics of financial statements as described by the IASB conceptual framework least likely include:
-
A decrease in a firm's inventory turnover ratio is most likely to result from:
-
Two firms are identical except that the first pays higher interest charges and lower dividends, while the second pays higher dividends and lower interest charges. Both prepare their financial statements under U.S. GAAP. Compared to the first, the second will have cash flow from financing (CFF) and earnings per share (EPS) that are:
CFF EPS
-
Which of the following is an analyst least likely to be able to find on or calculate from either a common-size income statement or a common-size balance sheet?
-
If a firm's inventory turnover and number of days of payables both increase, the effect on a firm's cash conversion cycle is:
-
The following information is summarized from Famous, Inc.'s financial statements for the year ended December 31,20X0:
·Sales were $800,000.
·Net profit margin was 20%.
·Sales to assets was 50%.
·Equity multiplier is 1.6.
·Interest expense was $30,000.
·Dividends declared were $32,000
Famous, Inc.'s sustainable growth rate based on results from this period is closest to:
-
On January 1, Orange Computers issued employee stock options for 400,000 shares. Options on 200,000 shares have an exercise price of $18, and options on the other 200,000 shares have an exercise price of $22. The year-end stock price was $24, and the average stock price over the year was $20. The change in the number of shares used to calculate diluted earnings per share for the year due to these options is closest to:
-
A snowmobile manufacturer that uses LIFO begins the year with an inventory of 3,000 snowmobiles, at a carrying cost of $4,000 each. In January, the company sells 2,000 snowmobiles at a price of $10,000 each. In July, the company adds 4,000 snowmobiles to inventory at a cost of $5,000 each. Compared to using a perpetual inventory system, using a periodic system for the firm's annual financial statements would:
-
Which of the following transactions is least likely to increase reported operating cash flow for the period?
-
Train Company paid $8 million to acquire a franchise at the beginning of 20X5 that was expensed in 20X5. If Train had elected to capitalize the franchise as an intangible asset and amortize the cost of the franchise over eight years, what effect would this decision have on Train's 20X5 cash flow from operations (CFO) and 20X6 debt-to-assets-ratio?
-
Graphics, Inc. has a deferred tax asset of $4,000,000 on its books. As of December 31, it is probable that $2,000,000 of the deferred tax asset's value will never be realized because of the uncertainty about future income. Graphics, Inc. should:
-
Long-lived assets cease to be depreciated when the firm's management decides to dispose of the assets by:
-
If Lizard Inc., a lessee, treats a 5-year lease as a finance lease with straight line depreciation rather than as an operating lease:
-
In the notes to its financial statements, Gilbert Company discloses a €400,000 reversal of an earlier writedown of inventory values, which increases this inventory's carrying value to €2,000,000. It is most likely that:
-
Taking an impairment charge due to a decrease in the value of a long-lived depreciable asset is least likely, in the period the impairment is recognized, to reduce a firm's:
-
Under U.S. GAAP, firms are required to capitalize:
-
With regard to the exercise of employee stock options, which of the following is least likely a concern to the analyst?
-
A firm that purchases a building that it intends to rent out for income would report this asset as investment property using the cost model under:
-
When a company redeems bonds before they mature, the gain or loss on debt extinguishment is calculated as the bonds' carrying amount minus the:
-
Victory Corp. received interest income from federally tax exempt bonds of $40,000 in the year 20X0. Its statutory tax rate is 40%. The effect of this difference between taxable and pre-tax income is most likely a (n):
-
Under a defined contribution pension plan, which of the following is recognized as a pension expense?
-
Princeton Company calls its $1,000,000, 9% bonds for $1,010,000. On the call date, the bonds have a book value of $980,000 and unamortized issue costs of $24,000. Under U.S. GAAP, Princeton should report a:
-
An analyst is comparing two firms, one that reports under IFRS and one that reports under FASB standards. An analyst is least likely to do which of the following to facilitate comparison of the companies?
-
An analyst wants to compare the cash flows of two U.S. companies, one that reports cash flow using the direct method and one that reports it using the indirect method. The analyst is most likely to:
-
Which of the following is most likely included in a firm's ending inventory?
-
Under which inventory cost flow assumption does inventory on the balance sheet best approximate its current cost?
-
During the year, a firm's inventory purchases were as follows:
The firm uses a periodic inventory system and calculates inventory and COGS at the end of the year.·Beginning inventory was 200 units at $3 per unit = $600.
·Sales for the year were 600 units.
Compute COGS for the year under FIFO and LIFO.
FIFO LIFO
-
During May, a firm's inventory account included the following transactions:
Assuming periodic FIFO inventory costing, gross profit for May was:
-
In periods of rising prices and stable inventory quantities, which of the following best describes the effect on gross profit of using LIFO as compared to using FIFO?
-
Kamp, Inc. sells specialized bicycle shoes. At year-end, due to a sudden increase in manufacturing costs, the replacement cost per pair of shoes is $55. The original cost is $43, and the current selling price is $50. The normal profit margin is 10% of the selling price, and the selling costs are $3 per pair. According to U.S. GAAP, which of the following amounts should each pair of shoes be reported on Kamp's year-end balance sheet?
-
Which of the following inventory disclosures would least likely be found in the footnotes of a firm following IFRS?
-
Which of the following is most likely for a firm with high inventory turnover and lower sales growth than the industry average? The firm:
-
Red Company immediately expenses its development costs while Black Company capitalizes its development costs. All else equal, Red Company will:
-
Which of the following statements about indefinite-lived intangible assets is most accurate?
-
In the early years of an asset's life, a firm using the double-declining balance method, as compared to a firm using straight-line depreciation, will report lower:
-
East Company purchased a new truck a t the beginning of this year for $30,000. The truck has a useful life of eight years or 150,000 miles, and an estimated salvage value of $3,000. If the truck is driven 16,500 miles this year, how much depreciation will East report under the double-declining balance (DDB) method and the units-of-production (UOP) method?
DDB UOP
-
Which of the following is least likely considered in determining the useful life an intangible asset?
-
At the beginning of this year, Fair-weather Corp. incurred $200,000 of research costs and $100,000 of development costs to create a new patent. The patent is expected to have a useful life of 40 years with no salvage value. Calculate the carrying value of the patent at the end of this year, assuming Fair-weather follows U.S. GAAP.
-
Two years ago, Metcalf Corp. purchased machinery for $800,000. At the end of last year, the machinery had a fair value of $720,000. Assuming Metcalf uses the revaluation model, what amount, if any, is recognized in Metcalf's net income this year if the machinery's fair value is $810,000?
-
According to U.S. GAAP, an asset is impaired when:
-
A firm recently recognized a $15,000 loss on the sale of machinery used in its manufacturing operation. The original cost of the machinery was $100,000 and the accumulated depreciation at the date of sale was $60,000. What amount did the firm receive from the sale?
-
Which of the following disclosures would least likely be found in the financial statement footnotes of a firm?
-
Which of the following statements is most accurate? The difference between taxes payable for the period and the tax expense recognized on the financial statements results from differences:
-
Which of the following tax definitions is least accurate?
-
An increase in the tax rate causes the balance sheet value of a deferred tax asset to:
-
In its first year of operations, a firm produces taxable income of－$10,000. The prevailing tax rate is 40%. The firm's balance sheet will report a deferred tax:
-
An analyst is comparing a firm to its competitors. The firm has a deferred tax liability that results from accelerated depreciation for tax purposes. The firm is expected to continue to grow in the foreseeable future. How should the liability be treated for analysis purposes?
-
Which one of the following statements is most accurate? Under the liability method of accounting for deferred taxes, a decrease in the tax rate at the beginning of the accounting period will:
-
While reviewing a company, an analyst identifies a permanent difference between taxable income and pretax income. Which of the following statements most accurately identifies the appropriate financial statement adjustment?
-
An analyst is reviewing a company with a large deferred tax asset on its balance sheet. She has determined that the firm has had cumulative losses for the last three years and has a reduced prices. Which of the following adjustments should the analyst make to account for the deferred tax assets?
-
If the tax base of an asset exceeds the asset's carrying value and a reversal is expected in the future:
-
The author of a new textbook received a $100,000 advance from the publisher this year. $40,000 of income taxes was paid on the advance when received. The textbook will not be finished until next year. Determine the tax basis of the advance at the end of this year.
-
According to IFRS, the deferred tax consequences of revaluing held-for-use equipment upward is reported on the balance sheet:
-
KLH Company reported the following:
·Gross DTA at the beginning of the year $10,500
·Gross DTA at the end of the year $11,250
·Valuation allowance at the beginning of the year $2,700
·Valuation allowance at the end of the year $3,900
Which of the following statements best describes the expected earnings of the firm? Earnings are expected to:
-
Using the effective interest rate method, the reported interest expense of a bond issued at a premium will:
-
According to U.S. GAAP, the coupon payment on a bond is:
-
At the beginning of 20X6, Cougar Corporation enters a finance lease requiring five annual payments of $10,000 each beginning on the first day of the lease. Assuming the lease interest rate is 8%, the amount of interest expense recognized by Cougar in 20X6 is closest to:
-
Which of the following is least likely to be disclosed in the financial statements of a bond issuer?
-
As compared to purchasing a n asset, which of the following is least likely an incentive to structure a transaction as a finance lease?
-
In a defined benefit pension plan:
-
A net pension asset or net pension liability is equal to the difference between the fair value of plan assets and the expected pension obligation under:
-
At the end of last year, Maui Corporation's assets and liabilities were as follows:
·Total assets $98,500
·Accrued liabilities $5,000
·Short-term debt $12,000
·Bonds payable $39,000
Maui's debt-to-equity ratio is closest to:
-
For a nonfinancial firm, are depreciation expense and interest expense included or excluded from operating expenses in the income statement?
Depreciation expense Interest expense
-
Are income taxes and cost of goods sold examples of expenses classified by nature or classified by function in the income statement?
Income taxes Cost of goods sold
-
Which of the following is least likely a condition necessary for revenue recognition?
-
AAA has a contract to build a building for $100,000 with an estimated time to completion of three years. A reliable cost estimate for the project is $60,000. In the first year of the project, AAA incurred costs totaling $24,000. How much profit should AAA report at the end of the first year under the percentage-of-completion method and the completed-contract method?
Percentage-of-completion Completed-contract
-
Which principle requires that cost of goods sold is recognized in the same period in which the sale of the related inventory is recorded?
-
Which of the following would least likely increase pretax income?
-
When accounting for inventory, are the first-in, first-out (FIFO) and last-in, first-out (LIFO) cost flow assumptions permitted under U.S. GAAP?
FIFO LIFO
-
Which of the following best describes the impact of depreciating equipment with a useful life of 6 years using the declining balance method as compared to the straight-line method?
-
CC Corporation reported the following inventory transactions (in chronological order) for the year:
Assuming inventory at the beginning of the year was zero; calculate the year-end inventory using FIFO and LIFO.
FIFO LIFO
-
At the beginning of the year, Triple W Corporation purchased a new piece of equipment to be used in its manufacturing operation. The cost of the equipment was $25,000. The equipment is expected to be used for 4 years and then sold for $4,000. Depreciation expense to be reported for the second year using the double-declining-balance method is closest to:
-
Which of the following is least likely considered a nonoperating transaction from the perspective of a manufacturing firm?
-
Changing an accounting estimate:
-
Which of the following transactions would most likely be reported below income from continuing operations, net of tax?
-
Which of the following statements about nonrecurring items is least accurate?
-
The Hall Corporation had 100,000 shares of common stock outstanding at the beginning of the year. Hall issued 30,000 shares of common stock on May 1. On July 1, the company issued a 10% stock dividend. On September 1, Hall issued 1, 000, 10% bonds, each convertible into 21 shares of common stock. What is the weighted average number of shares to be used in computing basic and diluted EPS, assuming the convertible bonds are dilutive?
Average shares, Average shares,
basic dilutive
-
Given the following information, how many shares should be used in computing diluted EPS?
·300,000 shares outstanding.
·100,000 warrants exercisable at $50 per share.
·Average share price is $55.
·Year-end share price is $60.
-
An analyst gathered the following information about a company:
·100,000 common shares outstanding from the beginning of the year.
·Earnings of $125,000.
·1,000, 7%, $1,000 par bonds convertible into 25 shares each, outstanding as of the beginning of the year.
·The tax rate is40%.
The company's diluted EPS is closest to:
-
An analyst has gathered the following information about a company:
·50,000 common shares outstanding from the beginning of the year.
·Warrants outstanding all year on 50,000 shares, exercisable at $20 per share.
·Stock is selling at year end for $25.
·The average price of the company's stock for the year was $15.
·How many shares should be used in calculating the company's diluted EPS?
-
Which of the following transactions affects owners' equity but does not affect net income?
-
Which of the following is least likely to be included when calculating comprehensive income?
-
A vertical common-size income statement expresses each category of the income statement as a percentage of:
-
Which of the following would most likely result in higher gross profit margin, assuming no fixed costs?
-
Which of the following is most likely an essential characteristic of an asset?
-
Which of the following statements about analyzing the balance sheet is most accurate?
-
Century Company's balance sheet follows:
Century's balance sheet presentation is known as a(n)?
-
Which of the following would most likely result in a current liability?
-
How should the proceeds received from the advance sale of tickets to a sporting event be treated by the seller, assuming the tickets are nonrefundable?
-
A vertical common-size balance sheet expresses each category of the balance sheet as a percentage of:
-
Which of the following inventory valuation methods is required by the accounting standard-setting bodies?
-
SF Corporation has created employee goodwill by reorganizing its retirement benefit package. An independent management consultant estimated the value of the goodwill at $2 million. In addition, SF recently purchased a patent that was developed by a competitor. The patent has an estimated useful life of five years. Should SF report the goodwill and patent on its balance sheet?
Goodwill Patent
-
At the beginning of the year, Parent Company purchased all 500,000 shares of Sub Incorporated for $15 per share. Just before the acquisition date, Sub's balance sheet reported net assets of $6 million. Parent determined the fair value of Sub's property and equipment was $1 million higher than reported by Sub. What amount of goodwill should Parent report as a result of its acquisition of Sub?
-
Miller Corporation has 160,000 shares of common stock authorized. There are 92,000 shares issued and 84,000 shares outstanding. How many shares of treasury stock does Miller own?
-
Selected data from Alpha Company's balance sheet at the end of the year follows:
·Investment in Beta Company, at fair value $150,000
·Deferred taxes $86,000
·Common stock, $1 par value $550,000
·Preferred stock, $100 par value $175,000
·Retained earnings $893,000
·Accumulated other comprehensive income $46,000
The investment in Beta Company had an original cost of $120,000. Assuming the investment in Beta is classified as available-for-sale, Alpha's total owners' equity at year-end is closest to:
-
Which of the following ratios are used to measure a firm's liquidity and solvency?
Liquidity Solvency
-
Using the following information, what is the firm's cash flow from operations?
-
Given the following:
Cash flow from operations is:
-
Which of the following items is least likely considered a cash flow from financing activity under U.S. GAAP?
-
Which of the following would be least likely to cause a change in investing cash flow?
-
Which of the following is least likely a change in cash flow from operations under U.S. GAAP?
-
Where are dividends paid to shareholders reported in the cash flow statement under U.S. GAAP and IFRS? U.S. GAAP IFRS
-
Sales of inventory would be classified as:
-
Issuing bonds would be classified as:
-
Sale of land would be classified as:
-
Under U.S. GAAP, taxes paid would be classified as:
-
An increase in notes payable would be classified as:
-
Under U.S. GAAP, interest paid would be classified as:
-
Continental Corporation reported sales revenue of $150,000 for the current year. If accounts receivable decreased $10,000 during the year and accounts payable increased $4,000 during the year, cash collections were:
-
The write-off of obsolete equipment would be classified as:
-
Sale of obsolete equipment would be classified as:
-
Under IFRS, interest expense would be classified as:
-
Depreciation expense would be classified as:
-
Under U.S. GAAP, dividends received from investments would be classified as:
-
Torval, Inc. retires debt securities by issuing equity securities. This is considered a:
-
Net income for Monique, Inc. for the year ended December 31,20X7 was $78,000. Its accounts receivable balance at December 31,20X7 was $121,000, and this balance was $69,000 at December 31,20X6. The accounts payable balance at December 31,20X7 was $72,000 and was $43,000 at December 31,20X6. Depreciation for 20X7 was $12,000, and there was an unrealized gain of $15,000 included in 20X7 incomes from the change in value of trading securities. Which of the following amounts represents Monique's cash flow from operations for 20X7?
-
Martin, Inc. had the following transactions during 20X7:·Purchased new fixed assets for $75,000.·Converted $70,000 worth of preferred shares to common shares.·Received cash dividends of $12,000. Paid cash dividends of $21,000.·Repaid mortgage principal of $17,000.Assuming Martin follows U.S. GAAP, which of the following amounts represents, Martin's cash flows from investing and cash flows from financing in 20X7, respectively? Cash flows from investing Cash flows from financing
-
In preparing a common-size cash flow statement, each cash flow is expressed as a percentage of:
-
To study trends in a firm's cost of goods sold (COGS), the analyst should standardize the cost of goods sold numbers to a common-sized basis by dividing COGS by:
-
Which of the following is least likely a limitation of financial ratios?
-
An analyst who is interested in a company's long-term solvency would most likely examine the:
-
RGB, Inc.'s purchases during the year were $100,000. The balance sheet shows an average accounts payable balance of $12,000. RGB's payables payment period is closest to:
-
RGB, Inc. has a gross profit of $45,000 on sales of $150,000. The balance sheet shows average total assets of $75,000 with an average inventory balance of $15.000. RGB's total asset turnover and inventory turnover are closest to:
Asset turnover Inventory turnover
-
If RGB, Inc. has annual sales of $100,000, average accounts payable of $30,000, and average accounts receivable of $25,000, RGB's receivables turnover and average collection period are closest to:
Receivables turnover Average collection period
-
A company's current ratio is 1.9. If some of the accounts payable are paid off from the cash account, the:
-
A company's quick ratio is 1.2. If inventory were purchased for cash, the:
-
All other things held constant, which of the following transactions will increase a firm's current ratio if the ratio is greater than one?
-
RGB, Inc.'s receivable turnover is ten times, the inventory turnover is five times, and the payables turnover is nine times. RGB's cash conversion cycle is closest to:
-
RGB, Inc.'s income statement shows sales of $1,000, cost of goods sold of $400, pre-interest operating expense of $300, and interest expense of $100. RGB's interest coverage ratio is closest to:
-
Return on equity using the traditional DuPont formula equals:
-
RGB, Inc. has a net profit margin of 12%, a total asset turnover of 1.2 times, and a financial leverage multiplier of 1.2 times. RGB's return on equity is closest to:
-
Use the following information for RGB, Inc.:
·EBIT/revenue= 10%
·Tax retention rate =60%
·Revenue / assets = 1.8 times
·Current ratio = 2 times
·EBT / EBIT = 0.9 times
·Assets / equity = 1.9 times
RGB, Inc.'s return on equity is closest to:
-
Which of the following equations least accurately represents return on equity?
-
Paragon Co. has an operating profit margin (EBIT / revenue) of 11%; an asset turnover ratio of 1.2; a financial leverage multiplier of 1.5 times; an average tax rate of 35%; and an interest burden of 0.7. Paragon's return on equity is closest to:
-
A firm has a dividend payout ratio of 40%, a net profit margin of 10%, an asset turnover of 0.9 times, and a financial leverage multiplier of 1.2 times. The firm's sustainable growth rate is closest to:
-
An analyst who needs m model and forecast a company's earnings for the next three years would be least likely to:
-
Which of the following statements least accurately describes a role of financial statement analysis?
-
A firm's financial position at a specific point in time is reported in the:
-
Information about accounting estimates, assumptions, and methods chosen for reporting is most likely found in:
-
If an auditor finds that a company's financial statements have made a specific exception to applicable accounting principles, she is most likely to issue a:
-
Information about elections of members to a company's Board of Directors is most likely found in:
-
Which of these steps is least likely to be a part of the financial statement analysis framework?
-
Accounts receivable and accounts payable are most likely classified as which financial statement elements?
Accounts receivable Accounts payable
-
Annual depreciation and accumulated depreciation are most likely classified as which financial statement elements?
Depreciation Accumulated depreciation
-
The accounting equation is least accurately stated as:
-
A decrease in assets would least likely be consistent with a(n):
-
An electrician repaired the light fixtures in a retail shop on October 24 and sent the bill to the shop on November 3. If both the electrician and the shop prepare financial statements under the accrual method on October 31, how will they each record this transaction?
Electrician Retail shop
-
If a firm raises $10 million by issuing new common stock, which of its financial statements will reflect the transaction?
-
An auditor needs to review all of a company's transactions that took place between August 15 and August 17 of the current year. To find this information, she would most likely consult the company's:
-
Paul Schmidt, a representative for Westby Investments, is explaining how security analysts use the results of the accounting process. He states, "Analysts do not have access to all the entries that went into creating a company's financial statements. If the analyst carefully reviews the auditor's report for any instances where the financial statements deviate from the appropriate accounting principles, he can then be confident that management is not manipulating earnings." Schmidt is:
-
Standard-setting bodies are responsible for:
-
Which of the following organizations is least likely involved with enforcing compliance with financial reporting standards?
-
Dawn Czerniak is writing an article about international financial reporting standards. In her article she states, "Despite strong support from business groups for a universally accepted set of financial reporting standards, disagreements among the standard-setting bodies and regulatory authorities of various countries remain a barrier to developing one." Czerniak's statement is:
-
According to the IASB Conceptual Framework, the fundamental qualitative characteristics that make financial statements useful are:
-
Which of the following most accurately lists a required reporting element that is used to measure a company's financial position and one that is used to measure a company's performance?
Position Performance
-
International Accounting Standard (IAS) No.1 least likely requires which of the following?
-
Which of the following statements about the FASB conceptual framework, as compared the IASB connectional framework, is most accurate?
-
Which is least likely one of the conclusions about the impact of a change in financial reporting standards that might appear in management's discussion and analysis?
-
The income from a financial investment in Country P by a citizen of Country Q is most likely included in:
-
Which of the following effects is most likely to occur in a country that increases its openness to international trade?
-
Which of the following statements about international trade is least accurate? If two countries have different opportunity costs of production for two goods, by engaging in trade:
-
With regard to the Ricardian and Heckscher-Ohlin models of international trade, the amount of capital relative to labor within a country is a factor in:
-
An agreement with another country to limit the volume of goods and services sold to them is best described as a:
-
The least likely result of import quotas and voluntary export restraints is:
-
Which of the following groups would be most likely to suffer losses from the imposition of a tariff on steel imports?
-
The most likely motivation for establishing a trading bloc is to:
-
In which type of regional trade agreement are economic policies conducted independently by the member countries, while labor and capital are free to move among member countries?
-
Which of the following is least likely a component of the current account?
-
A current account deficit is most likely to decrease as a result of an increase in:
-
Which international organization is primarily concerned with providing economic assistance to developing countries?
-
One year ago, the nominal exchange rate for USD/EUR was 1.300. Since then, the real exchange rate has increased by 3%. This most likely implies that:
-
Sell-side participants in the foreign exchange market are most likely to include:
-
Suppose that the quote for British pounds (GBP) in New York is USD/GBP 1.3110.What is the quote for U.S. dollars (USD) in London (GBP/USD)?
-
The Canadian dollar (CAD) exchange rate with the Japanese yen (JPY) changes from JPY/CAD 75 to JPY/CAD 78. The CAD has:
-
Today's spot rate for the Indonesian rupiah (IDR) is IDR/USD 2,400.00, and the New Zealand dollar trades at NZD/USD 1.6000. The NZD/IDR cross rate is:
-
The NZD is trading at USD/NZD 0.3500, and the SEK is trading at NZD/SEK 0.3100. The USD/SEK cross rate is:
-
The spot CHF/GBP exchange rate is 1.3050. In the 180-day forward market, the CHF/GBP exchange rate is-42.5 points. The 180-day forward CHF/GBP exchange rate is closest to:
-
The annual interest rates in the United States (USD) and Sweden (SEK) are 4% and 7% per year, respectively. If the current spot rate is SEK/USD 9.5238, then the 1-year forward rate in SEK/USD is:
-
The annual risk-free interest rate is 10% in the United States (USD) and 4% in Switzerland (CHF), and the 1-year forward rate is USD/CHF 0.80. Today's USD/CHF spot rate is closest to:
-
The spot rate on the New Zealand dollar (NZD) is NZD/USD 1.4286, and the 180-day forward rate is NZD/USD 1.3889. This difference means:
-
The monetary authority of The Stoddard Islands will exchange its currency for U.S. dollars at a one-for-one ratio. As a result, the exchange rate of the Stoddard Islands currency with the U.S. dollar is 1.00, and many businesses in the Islands will accept U.S. dollars in transactions. This exchange rate regime is best described as:
-
A country that wishes to narrow its trade deficit devalues its currency. If domestic demand for imports is perfectly price-inelastic, whether devaluing the currency will result in a narrower trade deficit is least likely to depend on:
-
A devaluation of a country's currency to improve its trade deficit would most likely benefit a producer of:
-
Other things equal, which of the following is most likely to decrease a country's trade deficit?
-
An analyst is evaluating the degree of competition in an industry and compiles the following information:
Few significant barriers to entry or exit exist.
Firms in the industry produce slightly differentiated products.
Each firm faces a demand curve that is largely unaffected by the actions of other individual firms in the industry.
The analyst should characterize the competitive structure of this industry as:
-
Which of the following statements about the behavior of firms in a perfectly competitive market is least accurate?
-
Compared to a customs union or a common market, the primary advantage of an economic union is that:
-
Which of the following statements about consumer surplus and producer surplus is most accurate?
-
Other things equal, an increase of 2.0% in the price of Product X results in a 1.4% increase in the quantity demanded of Product Y and a 0.7% decrease in the quantity demanded of Product Z. Which statement about products X, Y and Z is least accurate?
-
The EUR/USD spot exchange rate is 0.70145, and 1-year interest rates are 3% in EUR and 2% in USD. The forward USD/EUR exchange rate is closest to:
-
Depreciation of a country's currency is most likely to narrow its trade deficit when:
-
According to real business cycle theory, business cycles result from:
-
A decrease in the target U.S. federal funds rate is least likely to result in:
-
For an economy that is initially at full-employment real GDP, an increase in aggregate demand will most likely have what effects on the price level and real GDP in the short run?
-
Potential real GDP is least likely to increase as a result of an:
-
When the economy is operating at the natural rate of unemployment, it is most likely that:
-
The least appropriate approach to calculating a country's gross domestic product (GDP) is summing for a given time period the:
-
Gross domestic product does not include the value of:
-
When GDP is calculated by the sum-of-value-added method, what is the value of a manufactured product in GDP?
-
Real GDP is best described as the value of:
-
The GDP deflator is calculated as 100 times the ratio of:
-
Which of the following measures of income is the sum of wages and benefits, pretax profits, interest income, owners' income from unincorporated businesses, rent, and taxes net of subsidies?
-
Which of the following statements most accurately describes personal income?
Personal income:
-
If a government budget deficit increases, net exports must:
-
The IS curve illustrates which of the following relationships?
-
The time it takes for the prices of some factors of production to adjust to changes in demand leads to an upward-sloping:
-
An economy's potential output is best represented by:
-
A stronger domestic currency relative to foreign currencies is most likely to result in a:
-
Which of the following factors would be least likely to shift the aggregate demand curve?
-
In short-run equilibrium, if aggregate demand is increasing faster than long-run aggregate supply:
-
Labor productivity is most likely to increase as a result of a (n):
-
Long-term sustainable growth of an economy is least likely to result from growth in:
-
In a developed economy, the primary source of growth in potential GDP is:
-
In the early part of an economic expansion, inventory-sales ratios are most likely to:
-
The contraction phase of the business cycle is least likely accompanied by decreasing:
-
According to which business cycle theory should expansionary monetary policy be used to fight a recession?
-
The unemployment rate is defined as the number of unemployed as a percentage of the:
-
A country's year-end consumer price index over a 5-year period is as follows:
Year 1 106.5
Year 2 114.2
Year 3 119.9
Year 4 124.8
Year 5 128.1
The behavior of inflation as measured by this index is best described as:
-
Core inflation is best described as an inflation rate:
-
Which of the following is least likely to reduce substitution bias in a consumer price index?
-
In which of the following inflation scenarios does short-run aggregate supply decrease due to increasing wage demands?
-
The consumer price index for services is classified as a:
-
The most recent economic indicators show a decrease in the unemployment rate: an increase in personal income, and a decrease in building permits. Which phase of the business cycle is most consistent with these changes?
-
A central bank's policy goals least likely include:
-
A central bank conducts monetary policy primarily by altering the:
-
Both monetary and fiscal policy are used to:
-
Purchases of securities in the open market by the monetary authorities are least likely to increase:
-
An increase in the policy rate will most likely lead to an increase in:
-
The Fisher effect states that the nominal interest rate is equal to the real rate plus:
-
Which of the following is least likely a function or objective of a central bank?
-
If a country's inflation rate is below the central bank's target rate, the central bank is most likely to:
-
Sales in the retail sector have been sluggish, and consumer confidence has recently declined, indicating fewer planned purchases. In response, the president sends an expansionary government spending plan to the legislature. The plan is submitted on March 30, and the legislature refines and approves the terms of the spending plan on June 30. What type of fiscal plan is being considered, and what type of delay did the plan experience between March 30 and June 30?
Fiscal plan Type of lag
-
A government is concerned about the timing of the impact of fiscal policy changes and is considering requiring the compilation and reporting of economic statistics weekly, rather than quarterly. The new reporting frequency is intended to decrease the:
-
A government enacts a program to subsidize farmers with an expansive spending program of $10 billion. At the same time, the government enacts a $10 billion tax increase over the same period. Which of the following statements best describes the impact on aggregate demand?
-
Which of the following statements is least accurate? The existence and use of money:
-
Assume the Federal Reserve purchases $1 billion of securities in the open market. What is the maximum increase in the money supply that can result from this action, if the required reserve ratio is 15%?
-
The money supply curve is perfectly inelastic because the:
-
If money neutrality holds, the effect of an increase in the money supply is:
-
If the money supply is increasing and velocity is decreasing:
-
According to the quantity theory of money, if nominal GDP is $7 trillion, the price index is 150, and the money supply is $1 trillion, then the velocity of the money supply is closest to:
-
In the presence of tight monetary policy and loose fiscal policy, the most likely effect on interest rates and the private sector share in GDP are:
Interest rates Share of private sector
-
Monetary policy is most likely to fail to achieve its objectives when the economy is:
-
Suppose an economy has a real trend rate of 2%. The central bank has set an inflation target of 4.5%. To achieve the target, the central bank has set the policy rate at 6%. Monetary policy is most likely.
-
A government reduces spending by $50 million. The tax rate is 30%, and consumers exhibit a marginal propensity to consume of 80%. The change in aggregate demand caused by the change in government spending is closest to:
-
A country that targets a stable exchange rate with another country's currency least likely:
-
A company that manufactures airplane seats is best described as producing:
-
A change in the supply of bread is least likely to result from a change in:
-
If quantity supplied of refrigerators exceeds quantity demanded at the current market price, the most likelymarket response would be a(n):
-
Which of the following least likely describes unstable market equilibrium?
-
A demand function for cellular telephones is given by:
= 390-4
+ 0. 015 income + 2. 2 
e-0. 55 
. At current average prices, a cellphone costs $100, a landline costs $60, and wireless service costs $40. Average income is $20,000. The price of cellular telephones as a function of quantity demanded (QD) is most accuratelydescribed as:
-
The demand function for coffee pots is given by 250-5P, and the supply function is given by 20P-50. At a price of 15, the market:
-
Nascent Technologies solicits sealed bids for a placement of new shares and receives the following bids:
The entire share issue is placed with Equity Partners, that pays 25. 75 per share.
What type of auction did Nascent Technologies conduct?
-
The demand function for electric motors is 120 - 6P, and the supply function is 40P - 432. At a price of 12, the value of consumer surplus is closest to:
-
If a market is currently in equilibrium, which of the following is least likelyto cause an imbalance between supply and demand and a deadweight loss to the economy?
-
The long-term effects of a price ceiling on a market are least likelyto include:
-
The imposition of a price floor above the current equilibrium price is most likely to result in a:
-
A demand function for air conditioners is given by:
= 10,000－2 
+ 0. 0004 income + 30
－4 
. At current average prices, an air conditioner costs 5,000 yen, a fan costs 200 yen, and electricity costs 1,000 yen. Average income is 4,000,000 yen. The income elasticity of demand for air conditioners is closest to:
-
Which of the following statements is least accuratewith respect to utility theory?
Utility:
-
A consumer has a budget of 120 euros. If the price of melons increases from 4 euros to 5 euros, and the price of fish increases from 6 euros to 10 euros, the absolute value of the slope of the budget line for fish versus melons will most likely:
-
A consumer's equilibrium bundle of goods is bestdescribed as being located:
-
When the price of a good decreases, and an individual's consumption of that good also decreases, it is most likelythat the:
-
If widgets are a Giffen good, which of the following describes the effect of a price decrease in widgets? Quantity demanded will most likely.
-
Economic profits are zero if:
-
Marginal revenue is best interpreted as the:
-
As a firm employs additional units of either labor or capital in its production process, holding the quantity of the other input constant, the firm is most likely to experience diminishing returns to:
-
Which of the following statements most accuratelydescribes the shapes of the average variable cost (AVC) and average total cost (ATC) curves over a wide range of output?
-
The vertical distance between the average total cost (ATC) curve and average variable cost (AVC) curve:
-
Which of the following statements most accuratelydescribes the shape of the average fixed cost curve?
-
A firm's average revenue is greater than its average variable cost and less than its average total cost. If the firm does not expect price to change, the firm should:
-
If a firm's long-run average total cost increases by 6% if output is increased by 6%, the firm is experiencing:
-
A firm is considering whether to determine its profit maximizing quantity of output by maximizing the difference between total revenue and total cost or by producing up to the point where marginal revenue equals marginal cost. Which method is most likely to generate the greatest profit?
-
Which of the following characteristics bestdescribes a decreasing-cost industry? As the quantity supplied increases, the price per unit:
-
Which of the following statements most accurately describes the relationship between marginal product (MP) and average product (AP) of labor in the short run? As the quantity of output increases:
-
Marginal revenue product is best defined as the:
-
In a given firm, the marginal product per hour worked for a skilled worker is twice as much as it is for an unskilled worker. Skilled workers earn $20 per hour, and unskilled workers earn $8 per hour. Based on this information, the firm should increase the:
-
A firm is using the profit-maximizing combination of labor and capital if the ratio of each input's marginal revenue product to its cost per unit is:
-
The demand for products from monopolistic competitors is relatively elastic due to:
-
An oligopolistic industry has:
-
Which of the following statements most accurately describes a significant difference between a monopoly firm and a perfectly competitive firm? A perfectly competitive firm:
-
A monopolist will expand production until MR = MC and charge a price determined by the:
-
When a regulatory agency requires a monopolist to use average cost pricing, the intent is to price the product where the:
-
When a firm operates under conditions of pure competition, marginal revenue always equals:
-
In which market structure(s) can a firm's supply function be described as its marginal cost curve above its average variable cost curve?
-
In a purely competitive market, economic losses indicate that:
-
A purely competitive firm will tend to expand its output so long as:
-
Consider a firm in an oligopoly market that believes the demand curve for its product is more elastic above a certain price than below this price. This belief fits most closely to which of the following models?
-
Consider an agreement between France and Germany that will restrict wine production so that maximum economic profit can be realized. The possible outcomes of the agreement are presented in the table below.
Based on the concept of a Nash equilibrium, the most likely strategy followed by the two countries with respect to whether they comply with or default on the agreement will be:
-
A firm is likely to operate in the short run as long as price is at least as great as:
-
Which of the following is most likely an advantage of the Herfindahl-Hirschman Index relative to the N-firm concentration ratio? The Herfindahl-Hirschman Index:
-
A market characterized by low barriers to entry, good substitutes, limited pricing power, and marketing of product features is best characterized as:
-
Which of the following is least likely an example of a discrete random variable?
-
For a continuous random variable X, the probability of any single value of X is:
-
Which of the following is least likely a condition of a binomial experiment?
-
A recent study indicated that 60% of all businesses have a fax machine. From the binomial probability distribution table, the probability that exactly four businesses will have a fax machine in a random selection of six businesses is:
-
Ten percent of all college graduates hired stay with the same company for more than five years. In a random sample of six recently hired college graduates, the probability that exactly two will stay with the same company for more than five years is closest to:
-
Assume that 40% of candidates who sit for the CFA? examination pass it the first time. Of a random sample of 15 candidates who are sitting for the exam for the first time, what is the expected number of candidates that will pass?
-
For the standard normal distribution, the z-value gives the distance between the mean and a point in terms of the:
-
For a standard normal distribution, F (0) is:
-
For the standard normal distribution, P (0 ≤ Z ≤ 1.96) is:
-
If a stock's initial price is $20 and its year-end price is $23, then its continuously compounded annual rate of return is:
-
For a lognormal distribution, the:
-
Using hypothesized parameter values and a random number generator to study the behavior of certain asset returns is part of:
-
A continuous uniform distribution has the parameters a = 4 and b = 10. The F(20) is:
-
Which of the following statements least accurately describes the binomial distribution?
-
Approximately 95% of all observations for a normally distributed random variable fall in the interval:
-
The probability that a normally distributed random variable will be more than two standard deviations above its mean is:
-
A stock doubled in value last year. Its continuously compounded return over the period was closest to:
-
Portfolio A has a safety-first ratio of 1.3 with a threshold return of 2%. What is the shortfall risk for a threshold return of 2%?
-
A simple random sample is a sample drawn in such a way that each member of the population has:
-
Sampling error is defined as:
-
The mean age of all CFA candidates is 28 years. The mean age of a random sample of 100 candidates is found to be 26.5 years. The difference of 1.5 years is called the:
-
If nis large and the population standard deviation is unknown, the standard error of the sampling distribution of the sample mean is equal to the:
-
The standard error of the sampling distribution of the sample mean for a sample size of n drawn from a population with a mean of μ and a standard deviation of
is:
-
To apply the central limit theorem to the sampling distribution of the sample mean, the sample is usually considered to be large if n is greaterthan:
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Assume that a population has a mean of 14 with a standard deviation of 2. If a random sample of 49 observations is drawn from this population, the standard error of the sample mean is closest to:
-
The population's mean is 30 and the mean of a sample of size 100 is 28.5. The variance of the sample is 25. The standard error of the sample mean is closest to:
-
A random sample of 100 computer store customers spent an average of $75 at the store. Assuming the distribution is normal and the population standard deviation is $20, the 95% confidence interval for the population mean is closest to:
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Best Computers, Inc., sells computers and computer parts by mail. A sample of 25 recent orders showed the mean time taken to ship out these orders was 70 hours with a sample standard deviation of 14 hours. Assuming the population is normally distributed, the 99% confidence interval for the population mean is:
-
The sampling distribution of a statistic is the probability distribution made up of all possible:
-
The sample of debt/equity ratios of 25 publicly traded U.S. banks as of fiscal year-end 2003 is an example of:
-
Which of the following is least likely a desirable property of an estimate?
-
If the variance of the sampling distribution of an estimator is smaller than all other unbiased estimators of the parameter of interest, the estimator is:
-
Which of the following is least likelya property of Student's t-distribution?
-
An analyst who uses historical data that was not publicly available at the time period being studied will have a sample with:
-
The 95% confidence interval of the sample mean of employee age for a major corporation is 19 years to 44 years based on a z-statistic. The population of employees is more than 5,000 and the sample size of this test is 100. Assuming the population is normally distributed, the standard error of mean employee age is closet to:
-
Which of the following is most closely associated with survivorship bias?
-
What is the most appropriate test statistic for constructing confidence intervals for the population mean when the population is normally distributed, but the variance is unknown?
-
When constructing a confidence interval for the population mean of a nonnormal distribution when the population variance is unknown and the sample size is large (n > 30), an analyst may acceptably use:
-
Jenny Fox evaluates managers who have a cross-sectional population standard deviation of returns of 8%. If returns are independent across managers, how large of a sample does Fox need so the standard error of sample means is 1.265%?
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Annual returns on small stocks have a population mean of 12% and a population standard deviation of 20%. If the returns are normally distributed, a 90% confidence interval on mean returns over a 5-year period is:
-
Which of the following statements about hypothesis testing is least accurate?
-
Which of the following statements about hypothesis testing is most accurate?
-
A study was conducted to determine whether the standard deviation of monthly maintenance costs of a Pepper III aircraft is $300. A sample of 3 Pepper IIIs had a mean monthly maintenance cost of $3,025 and a standard deviation of $325. Using a 5% level of significance, which of the following is the most appropriate conclusion regarding the difference between the hypothesized value of the population variance and the sample variance?
-
If the significance level of a test is 0.05 and the probability of a Type II error is 0.15, what is the power of the test.)
-
Which of the following statements about the F-distribution and chi-square distribution is least accurate? Both distributions:
-
The appropriate test statistic for a test of the equality of variances for two normally distributed random variables, based on two independent random samples, is the.
-
The appropriate test statistic to test the hypothesis that the variance of a normally distributed population is equal to 13 is the:.
-
William Adams wants to test whether the mean monthly returns over the last five years are the same for two stocks. If he assumes that the returns distributions are normal and have equal variances, the type of test and test statistic are best described as:
-
Which of the following assumptions is least likely required for the difference in means test based on two samples?
-
For a hypothesis test with a probability of a Type II error of 60% and a probability of a Type I error of 5%, which of the following statements is most accurate?
-
An assumption of technical analysis is that market prices:
-
From which of the following charts can an analyst read the opening price for a trading period?
-
A stock has been in a downtrend for several days. When its price decreases to near $30, many investors enter orders to buy the stock and the price increases to $31. This is most likely an example of a:
-
An analyst who uses the standard deviation of recent prices to identify overbought or oversold conditions is most likelyto employ:
-
A momentum indicator based on the ratio of price increases to price decreases over the last 14 days is most likely a:
-
An increase in which of the following is most likely when stock market sentiment is becoming more bullish?
-
The Kondratieff wave is a cycle of:
-
For an asset with a current price of 100, which of the following price targets is most likelybased on a Fibonacci ratio?
-
If a stock's relative strength ratio increases, the stock is:
-
Allan Jabber invested $400 at the beginning of each of the last 12 months in the shares of a mutual fund that paid no dividends Which method will he correctly choose in order to calculate his average price per share from the monthly share prices?
-
The central limit theorem and Chebyshev's inequality apply to which distributions?
Central limit theorem Chebyshev's inequality
-
Colonia has only two political parties, the Wigs and the Wags. If the Wags are elected, there is a 32% probability of a tax increase over the next four years. If the Wigs are elected, there is a 60% probability of a tax increase. Based on the current polls, there is a 20% probability that the Wags will be elected. The sum of the (unconditional) probability of a tax increase and the joint probability that the Wigs will be elected and there will be no tax increase are closestto:
-
Analysts at Wellborn Advisors are considering two well-diversified portfolios based on firm forecasts of their expected returns and variance of returns. James argues that Portfolio 1 will be preferred by the client because it has a lower coefficient of variation. Samantha argues that Portfolio 2 would be preferred by the client because it has a higher Sharpe ratio. The client states that he wishes to minimize the probability that his portfolio will produce returns less than the risk-free rate. Based on this information, the client would most likelyprefer:
-
Ralph will retire 15 years from today and has saved $121,000 in his investment account for retirement. He believes he will need $37,000 at the beginning of each year for 25 years of retirement, with the first withdrawal on the day he retires. Ralph assumes that his investment account will return 8%. The amount he needs to deposit at the beginning of this year and each of the following 14 years (15 deposits in all) is closest:
-
The current price of Bosto shares is €50. Over the coming year, there is a 40% probability that share returns will be 10%, a 40% probability that share returns will be 12.5%, and a 20% probability that share returns will be 30%. Bosto's expected return and standard deviation of returns for the coming year are closest to:
Expected return Standard deviation
-
Nikki Ali and Donald Ankard borrowed $15,000 to finance their wedding and reception. The fully-amortizing loan at 11% requires equal payments at the end of each of the next seven years. The principal portion of the first payment is closest to:
-
Which of the following statements about probability distributions is least accurate?
-
Which of the following trading strategies is most likely using the change in polarity principle?
-
Given the following data:
There is a 40% probability that the economy will be good next year and a 60% probability that it will be bad.
If the economy is good, there is a 50% probability of a bull market, a 30% probability of an average market, and a 20% probability of a bear market.
If the economy is bad, there is a 20% probability of a bull market, a 30% probability of an average market, and a 50% probability of a bear market.
The unconditional probability of a bull market is closest to:
-
X, Y, and Z are independently distributed. The probability of X is 30%, the probability of Y is 40%, and the probability of Z is 20%. Which of the following is closest to the probability that either X or Y will occur?
-
Which will be equal for a 1-year T-bill with 360 days to maturity?
-
The percentage changes in annual earnings for a company are approximately normally distributed with a mean of 5% and a standard deviation of 12%. The probability that the average change in earnings over the next five years will be greater than 15.5% is closest to:
-
Which of the following is least likely correct concerning a random variable that is lognormally distributed?
-
A discrete random variable x can take on the values 1,2,3,4, or 5. The probability function is Prob (x) = x/15, so the cumulative distribution function is
. The cumulative probability, F (4), and P (2 < x ≤ 5) are:
F (4) P (2 < x ≤ 5)
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The amount an investor will have in 15 years if $1,000 is invested today at an annual interest rare of 9% will be closest to:
-
Fifty years ago, an investor bought a share of stock for $10. The stock has paid no dividends during this period, yet it has returned 20%, compounded annually, over the past 50 years. If this is true, the share price is now closest to:
-
How much must be invested today at 0% to have $100 in three years?
-
How much must be invested today, at 8% interest, to accumulate enough to retire a $10,000 debt due seven years from today? The amount that must be invested today is closest to:
-
An analyst estimates that XYZ's earnings will grow from $3.00 a share to $4.50 per share over the next eight years. The rate of growth in XYZ's earnings is closest to:
-
If $5,000 is invested in a fund offering a rate of return of 12% per year, approximately how many years will it take for the investment to reach $10,000?
-
An investment is expected to produce the cash flows of $500, $200, and $800 at the end of the next three years. If the required rate of return is 12%, the present value of this investment is closest to:
-
Given an 8.5% discount rate, an asset that generates cash flows of $10 in Year 1, -$20 in Year 2, $10 in Year 3, and is then sold for $150 at the end of Year 4, has a present value of:
-
An investor has just won the lottery and will receive $50,000 per year at the end of each of the next 20 years. At a 10% interest rate, the present value of the winnings is closest to:
-
If $10,000 is invested today in an account that earns interest at a rate of 9.5%, what is the value of the equal withdrawals that can be taken out of the account at the end of each of the next five years if the investor plans to deplete the account at the end of the time period?
-
An investor is to receive a 15-year, $8,000 annuity. with the first payment to be received today. At an 11% discount rate, this annuity's worth today is closest to:
-
Given an 11% rate of return, the amount that must be put into an investment account at the end of each of the next ten years in order to accumulate $60,000 to pay for a child's education is closest to:
-
An investor will receive an annuity of $4,000 a year for ten years. The first payment is to be received five years from today. At a 9% discount rate, this annuity's worth today is closest to:
-
If $1,000 is invested today and $1,000 is invested at the beginning of each of the next three years at 12% interest (compounded annually), the amount an investor will have at the end of the fourth year will be closest to:
-
An investor is looking at a $150,000 home. If 20% must be put down and the balance is financed at 9% over the next 30 years, what is the monthly mortgage payment?
-
Given daily compounding, the growth of $5,000 invested for one year at 12% interest will be closest to:
-
Terry Corporation preferred stocks are expected to pay a $9 annual dividend forever. If the required rate of return on equivalent investments is 11%, a share of Terry preferred should be worth:
-
A share o f George Co. preferred stock i s selling for $65. It pays a dividend of $4.50 per year and has a perpetual life. The rate of return it is offering its investors is closest to:
-
If $10,000 is borrowed at 10% interest to be paid back over ten years, how much of the second year's payment is interest (assume annual loan payments)?
-
What is the effective annual rate for a credit card that charges 18% compounded monthly?
-
Which of the following statements least accurately describes the IRR and NPV methods?
-
Which of the following statements least accurately describes the IRR and NPV methods?
-
Which o f the following statements least accuratelydescribes the IRR and NPV methods?
-
A company is considering entering into a joint venture that will require an investment of $10 million. The project is expected to generate cash flows of $4 million, $3 million, and $4 million in each of the next three years, respectively. Assuming a discount rate of 10%, what is the project's NPV?
-
A company is considering entering into a joint venture that will require an investment of $10 million. The project is expected to generate cash flows of $4 million, $3 million, and $4 million in each of the next three years, respectively. Assuming a discount rate of 10%, what is the project's approximateIRR?
-
What should an analyst recommend based on the Following information for two independent projects?
-
What should an analyst recommend based on the following information for two mutually exclusive projects?
-
Goodeal, Inc., is considering the purchase of a new material handling system for a cost of $15 million. This system is expected to generate a positive cash flow of $1.8 million per year in perpetuity. What is the NPV of the proposed investment if the appropriate discount rate is 10.5%?
-
Goodeal, Inc., is considering the purchase of a new material handling system for a cost of $15 million. This system is expected to generate a positive cash flow of $1.8 million per year in perpetuity. What is the IRR of the proposed investment if the appropriate hurdle rate is 10.5%?
-
Should a company accept a project that has an IRR of 14% and an NPV of $2.8 million if the cost of capital is 12%?
-
Which of the following statements least likelyrepresents a characteristic of the time-weighted rate of return? It is:
-
What is the bank discount yield for a T-bill that is selling for $99,000, with a face value of $100,000 and 95 days remaining until maturity?
-
What is the holding period yield for a T-bill that is selling for $99,000 if it has a face value of $100,000 and 95 days remaining until maturity?
-
What is the effective annual yield for a T-bill that is selling for $99,000 if it has a face value of $100,000 and 95 days remaining until maturity?
-
What is the money market yield for a T-bill that is selling for $99,000 if it has a face value of $100,000 and 95 days remaining until maturity?
-
Which of the following is least accurate regarding a bank discount yield?
-
A 175-day T-bill has an effective annual yield of 3.80%. Its money-market yield is closest to:
-
The intervals in a frequency distribution should always have which of the following characteristics? The intervals should always:
-
For a skewed distribution, what is the minimum percentage of the observations that will lie between ±2.5 standard deviations of the mean based on Chebyshev's Inequality?
-
A distribution of returns that has a greater percentage of small deviations from the mean and a greater percentage of extremely large deviations from the mean compared to a normal distribution:
-
Which of the following is most accurate regarding a distribution of returns that has a mean greater than its median?
-
The harmonic mean of 3, 4, and 5 is:
-
Given the conditional probabilities in the table below and the unconditional probabilities P(Y = 1) = 0.3 and P(Y = 2) = 0.7, what is the expected value of X.
-
The probability that the DJIA will increase tomorrow is 2/3. The probability of an increase in the DJIA stated as odds is:
-
A discrete uniform distribution (each event has an equal probability of occurrence) has the following possible outcomes for X: [1, 2, 3, 4]. The variance of this distribution is closest to:
-
If events A and B are mutually exclusive, then:
-
At a charity ball, 800 names are put into a hat. Four of the names are identical. On a random draw, what is the probability that one of these four names will be drawn?
-
Among 900 taxpayers with incomes below $100,000, 35 were audited by the IRS. The probability that a randomly chosen individual with an income below $100,000 was audited is closest to:
-
Which of the following values cannot be the probability of an event?
-
Two mutually exclusive events:
-
Two events are said to be independent if the occurrence of one event:
-
Consider a universe of ten bonds from which an investor will ultimately purchase six bonds for his portfolio. If the order in which he buys these bonds is not important, how many potential 6-bond combinations are there?
-
The correlation of returns between Stocks A and B is 0.50. The covariance between these two securities is 0.0043, and the standard deviation of the return of Stock B is 26%. The variance of returns for Stock A is:
-
There are ten sprinters in the finals of a race. How many different ways can the gold, silver, and bronze medals be awarded?
-
Which of the following is least likely a probability distribution?
-
In situations where the laws of a member or candidate's country of residence, the local laws of regions where the member or candidate does business, and the Code and Standards specify different requirements, the member or candidate must abide by:
-
According to the Standard on independence and objectivity, members and candidates:
-
Bill Cooper finds a table of historical bond yields on the website of the U.S. Treasury that supports the work he has done in his analysis and includes the table as part of his report without citing the source．Has Cooper violated the Code and Standards?
-
Which of the following statements about the Standard on misconduct is most accurate?
-
Ed Ingus, CFA, visits the headquarters and main plant of Bullitt Company and observes that inventories of unsold goods appear unusually large. From the CFO, he learns that a recent increase in returned items may result in earnings for the current quarter that are below analysts' estimates. Based on his visit, Ingus changes his recommendation on Bullitt to "Sell." Has Ingus violated the Standard concerning material nonpublic information?
-
Green Brothers, an emerging market fund manager, has two of its subsidiaries simultaneously buy and sell emerging market stocks．In its marketing literature, Green Brothers cites the overall emerging market volume as evidence of the market's liquidity. As a result of its actions, more investors participate in the emerging markets fund. Green Brothers most likely
-
Cobb, Inc., has hired Jude Kasten, CFA, to manage its pension fund. The client(s) to whom Kasten owes a duty of loyalty are:
-
Which of the following actions is most likely a violation of the Standard on fair dealing?
-
The Standard regarding suitability most likely requires that:
-
Which of the following is most likely a recommended procedure for complying with the Standard on performance presentation?
-
The CFA Institute Professional Conduct Program (PCP) has begun an investigation into Chris Jones, a Level II CFA candidate, and a number of his CFA Charterholder colleagues. Jones has access to confidential client records that could be useful in clearing his name and wishes to share this information with the PCP. Which of the following most accurately describes Jones's duties with regard to preservation of confidentiality?
-
Connie Fletcher, CFA, works for a small money management firm that specializes in pension accounts. Recently, a friend asked her to act as an unpaid volunteer manager for the city's street sweep pension fund. As part of the position, the city would grant Fletcher a free parking space in front of her downtown office. Before Fletcher accepts, she should most appropriately:
-
Sarah Johnson, a portfolio manager, is offered a bonus directly by a client if Johnson meets certain performance goals. To comply with the Standard that governs additional compensation arrangements, Johnson should:
-
A member or candidate who has supervisory responsibility:
-
Which of the following actions is a required, rather than recommended, action under the Standard regarding diligence and a reasonable basis for a firm's research recommendations?
-
Claire Marlin, CFA, manages an investment fund specializing in foreign currency trading. Marlin writes a report to investors that describes the basic characteristics of her strategy, which is based on an expected appreciation of the euro relative to other major currencies. Marlin shows the projected returns from the strategy if the euro appreciates less than 5%, between 5% and 10%, or more than 10%, while clearly stating that these forecasts are her opinion. ．Has Marlin violated the Standard related to communication with clients?
-
If regulations do not specify how long to retain the documents that support an analyst's conclusions, the Code and Standards recommend a period of at least:
-
Daniel Lyons, CFA, is an analyst who covers several stocks including Horizon Company. Lyons's aunt owns 30,000 shares of Horizon. She informs Lyons that she has created a trust in his name into which she has placed 2,000 shares of Horizon. The trust is structured so that Lyons will not be able to sell the shares until his aunt dies, but may vote the shares. Lyons is due to update his research coverage of Horizon next week. Lyons should most appropriately:
-
Kate Wilson, CFA, is an equity analyst. Wilson enters two transactions for her personal account. Wilson sells 500 shares of Tibon, Inc., a stock on which her firm currently has a "Buy" recommendation. Wilson buys 200 shares of Hayfield Co. and the following day issues a research report on Hayfield with a "Buy" recommendation. Has Wilson violated the Code and Standards?
-
Hern Investments provides monthly emerging market research to Baker Brokerage in exchange for prospective client referrals and European equity research from Baker. Clients and prospects of Hern are not made aware of the agreement, but clients unanimously rave about the high quality of the research provided by Baker. As a result of the research, many clients with non- discretionary accounts have earned substantial returns on their portfolios. Managers at Hem have also used the research to earn outstanding returns for the firm's discretionary accounts. Hern has most likely:
-
After writing the CFA Level I exam, Cynthia White goes to internet discussion site CFA Haven to express her frustration. White writes, "CFA Institute is not doing a competent job of evaluating candidates because none of the questions in the June exam touched on Alternative Investments." White most likely violated the Standard related to conduct as a candidate in the CFA program by:
-
After passing all three levels of the CFA exams on her first attempts and being awarded her CFA Charter, Paula Osgood is promoting her new money management firm by issuing an advertisement. Which of these statements would most likely violate the Standard related to use of the CFA designation?
-
Which of the following statements most accurately describes the parties that GIPS are intended to apply to and serve? GIPS apply to:
-
For a composite to be constructed in compliance with GIPS, the portfolios included in the composite must:
-
Verification of compliance with GIPS:
-
Firms that claim to present investment performance in compliance with GIPS are required to:
-
Which of the following definitions of a firm would violate GIPS?
-
If a country has regulations in place that conflict with GIPS, firms that wish to claim GIPS compliance:
-
Which of the following includes only sections of the Global Investment Performance Standards?
-
Karen Jones, CFA, is an outside director for Valley Manufacturing. At a director's meeting, Jones finds out that Valley Corp. has made several contributions to foreign politicians that she suspects were illegal. Jones checks with her firm's legal counsel and determines that the contributions were indeed illegal. At the next board meeting, Jones urges the board to disclose the contributions. The board, however, votes not to make a disclosure. Jones's most appropriate action would be to:
-
Over the past two days, Lorraine Quigley, CFA, manager of a hedge fund, has been purchasing large quantities of Craeger Industrial Products' common stock while at the same time shorting put options on the same stock. Quigley did not notify her clients of the trades although they are aware of the fund's general strategy to generate returns. Which of the following statements is most likelycorrect? Quigley:
-
Melvin Byrne, CFA, manages a portfolio for James Martin, a wealthy client. Martin's portfolio is well diversified with a slight tilt toward capital appreciation. Martin requires very little income from the portfolio. Recently, Martin's brother, Cliff, has become a client of Byrne. Byrne proceeds to invest Cliff's portfolio in a similar manner to James's portfolio based on the fact that both brothers have a similar lifestyle and are only two years apart in age. Which of the following statements is most likelycorrect? Byrne:
-
Robert Blair, CFA, Director of Research, has had an ongoing battle with his firm's management about the adequacy of its compliance system. Blair believes the firm's compliance procedures are inadequate in that they are not being monitored or carefully followed. Blair should most appropriately.
-
Beth Anderson, CFA, is a portfolio manager for several wealthy clients including Reuben Carlyle. Anderson manages Carlyle's personal portfolio of stock and bond investments. Carlyle recently told Anderson that he is under investigation by the IRS for tax evasion related to his business, Carlyle Concrete. After learning about the investigation, Anderson informs a friend at a local investment bank so that they may withdraw their proposal to take Carlyle Concrete public. Anderson has most likely:
-
A research report states: "Based on the fact that the South American utilities sector has seen rapid growth in new service orders, we expect that most companies in the sector will be able to convert the revenue increases into significant profits. We also believe the trend will continue for the next three to five years." The report goes on to describe the major risks of investing in this market. The author of this report:
-
Frist Investments, Inc. has just hired Michael Pulin to manage institutional portfolios, most of which are pension related. Pulin has just taken the Level III CFA exam and is awaiting his results. Pulin has more than 15 years of investment management experience with individual clients but has never managed an institutional portfolio. Pulin joined the CFA Institute as an affiliate member two years ago and is in good standing with the organization. Which of the following statements would be most appropriate for Frist to use in advertising Pulin as a new member of the firm? Pulin:
-
Zanuatu, an island nation, does not have any regulations precluding the use of nonpublic information. Alfredo Romero has a friend and fellow CFA charterholder there, Donna Gordon, with whom he has shared nonpublic information regarding firms outside his industry. The information concerns several firms' internal earnings and cash flow projections. Gordon may:
-
Samantha Donovan, CFA, is an exam proctor for the Level II CFA exam. The day before the exam is to be administered, Donovan faxes a copy of one of the questions to two friends, James Smythe and Lynn Yeats, who are Level II candidates in the CFA program. Donovan, Smythe, and Yeats had planned the distribution of an exam question months in advance. Smythe used the fax to prepare for the exam. Yeats, however, had second thoughts and threw the fax away without looking at its contents. Which of the following statements is most likelycorrect?
-
Sally Albright, CFA, works full time for Frank & Company, an investment management firm, as a fixed income security analyst. Albright has been asked by a business contact at KDG Enterprises to accept some analytical work from KDG on a consulting basis. ．The work would entail investigating potential distressed debt securities in the small-cap market. Albright should most appropriately.
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Josef Karloff, CFA, acts as liaison between Pinnacle Financial (an investment management firm) and Summit Inc．(an investment banking boutique specializing in penny stocks)．When Summit underwrites an IPO, Karloff routinely has Pinnacle issue vague statements implying that the firm has cash flows, financial resources, and growth prospects that are better than is the case in reality．This action is most likely a violation of the section of the Standards concerning:
-
Steve Matthews, CFA, is a principal at Carlson Brothers, a leading regional investment bank specializing in initial public offerings of small to mid-sized biotech firms. Just before many of the IPOs are offered to the general public, Matthews arranges for 10% of the shares to be distributed to management of the firm going public. This action is a violation of the Standard concerning:
-
Will Hunter, CFA, is a portfolio manager at NV Asset Managers. An investment banker asks Hunter to purchase shares in a new IPO to support the price long enough for insiders to liquidate their holdings. Hunter realizes that the price of the shares will almost certainly fall dramatically after his buying support ceases. NV management "strongly suggests" that Hunter honor the investment banker's request since NV has had a longstanding relationship with the investment bank. If Hunter agrees to make the purchases, he will:
-
Neiman Investment Co. receives brokerage business from Pick Asset Management in exchange for referring prospective clients to Pick. Pick advises clients--in writing, at the time the relationship is established--of the nature of its arrangement with Neiman. With regard to this practice, Pick has:
-
Ralph Salley, a Level I candidate in the CFA Program, is explaining Standard VI(B) Priority of Transactions, to his supervisor. Salley states, "The Standard recommends, but does not require, that members and candidates should not participate in initial public offerings. The Standard also recommends that trades for accounts of family members be made after those for other clients, but before those for the account of the members and candidates responsible for executing the transactions." Salley's explanation of the Standard is:
-
Which of the following policies is required to comply with GIPS?
-
Mason Smith is trying to decide which of the following composite definitions, submitted by his junior analysts, would be considered an acceptable composite according to GIPS．An acceptable composite can include all:
-
An investment management firm, Investco, Inc., was recently audited by the United States Securities and Exchange Commission (SEC). Investco included the following statement in its performance presentation report: "This report has been verified as GIPS compliant by Investco's Compliance Department and the United States Securities and Exchange Commission." Does this constitute acceptable verification under GIPS?
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Wei Zhang, CFA, manages accounts for high net worth clients including his own family's account. He has no beneficial ownership in his family's account. Because Zhang is concerned about the appearance of improper behavior in managing his family's account, when his firm purchases a block of securities, Zhang allocates to his family's account only those shares that remain after allocation to his other client accounts. The fee form managing his family's account is based on his firm's normal fee structure. According to the Standards of Practice Handbook, Zhang's best course of action with regard to management of his family's account would be to:
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John Maginn, an investment researcher, who is a CFA charterholder, takes a trip for which his firm will pay all the expenses. Upon his return he alters some of the numbers on restaurant receipts to inflate the expenses by $52. Is this a violation relating to Professional Misconduct?
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According to the Global Investment Performance Standards (GIPS):
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Several years ago, Simon Ma, CFA, founded an investment club with three friends. The investment club's account grew rapidly to a substantial size, but the club has not actively traded the account for at least a year and does not plan to resume active trading of the account. Simon's employer requires an annual disclosure of employee stock ownership. Simon discloses all of his personal trading accounts, but does not disclose his holdings in the investment club. Has Simon most likely violated any CFA Institute Standards of Professional Conduct?
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Longman Investment Management has established on January 1, 1985 and has maintained composite since the inception of the firm. Longman has not been compliant with the Global Investment Performance Standards (GIPS), but wants to achieve compliance as of January 1, 2005. For each of the firm's composite presentation, the minimum number of GIPS-compliant years that Longman must present is closest to:
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Jin Jin, CFA, is the president of the Registered Option Exchange, which is preparing to launch a new stock option contract. In order to convince investors to use its contract, the exchange attempts to demonstrate that it has the best liquidity. Jin Jin sets up agreements with members so that they commit to a substantial minimum trading volume on the new contract over a specific period in exchange for substantial reductions on their regular commissions. According to the Standards of Practice Handbook, has Jin Jin violated any CFA Institute Standards?
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Which of the following statements about verification of compliance with the Global Investment Performance Standards (GIPS) is least accurate?
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Xiang Li, CFA, deputy treasurer for BBB College, manages the Student Scholarship Trust. Li issued a Request for Proposals (RFP) for domestic equity managers. Gong Cheng, CFA, a good friend of Li, introduces him to representatives from Capital Investments, who submitted a proposal. Li selected Capital as a manager based on the firm's excellent performance record. Shortly after the selection, Cheng, who had outstanding performance as an equity manager with another firm, accepted a lucrative job with Capital. Have Li and Cheng, respectively, violated any CFA Institute Standards of Professional Conduct?
Li Cheng
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With respect to the fundamentals of compliance with the GIPS standards, do total firm assets include the market value of all:
Discretionary assets but not fee-paying assets but not
nondiscretionary assets? non-fee-paving assets?
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Alex Wu, CFA, a portfolio manager at FAST Funds, calls a friend to join him for dinner. The friend, a financial analyst at Calvin Klein (CK) declines the invitation and explains that she is performing due diligence on Orca Electronics, a company that CK is about to acquire. After the phone call, Alex searches the Internet for any news of the acquisition but finds nothing. Upon verifying that Orca is on FAST's approved stock list, Alex purchases Orca's common stock and call options for the FAST fund. Two weeks later, CK announces its intention to acquire Orca. The next day, Alex sells all of the Orca securities, giving the fund a profit of $3 million. According to the Standards of Practice Handbook, did Alex violate any CFA Institute Standards of Professional Conduct?
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Andrew Li, CFA, was recently promoted to senior portfolio manager. In her new position, Andrew is required to supervise three portfolio managers. Andrew asks for a copy of her firm's written supervisory policies and procedures, but is advised that no such policies are required by regulatory standards in the country where Andrew's firm conducts the majority of its business. According to the Standards of Practice Handbook, Andrew's most appropriate course of action would be to:
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When Wes Smith first joined Advisors, Inc., he was excited that all the analysts at the firm had the CFA designation. In letters to prospective clients he states that this ensures that Advisors can provide better service than their competitors. With respect to Code and Standards, this is:
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Marysa Chen, CFA, works for JanMc Investment Management. All personal investments by JanMc employees must receive prior clearance in accordance with JanMc's compliance procedures. To obtain prior clearance, JanMc employees must provide a written request identifying the security, the quantity of the security to be purchased, and the name of the broker through which the transaction will be made. As indicated below, Marysa received prior clearance.
Two days after she received prior clearance, the price of Stock B had decreased 50. Marysa decided to purchase 250 shares of Stock B only. In her decision to purchase 250 shares of Stock B only, did Marysa violate any CFA Institute Standards of Professional Conduct?
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Brenda Simone is a money manager with the pension fund of Blue Streets as one of her clients. The director of the pension fund calls Simone and asks her to use a particular broker so that the fund can obtain some research services with the soft dollars from that broker. Simone believes that the desired broker will provide the same price and execution as the normal broker that Simone uses. Simone does as the client wishes. Simone has:
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An analyst who is a CFA institute member receives an invitation from a business associate's firm to spend the weekend in a high-quality resort. In order to abide by the Standards, the analyst should (may):
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Zhou Lun, CFA, is an equity analyst who recently prepared a full report on BMM Corporation. The report included financial projections developed by Zhou Lun and information gathered from a third-party research firm, which she referenced, in the report, Zhou Lun wrote, “We recommend this stock for the portfolios of clients with aggressive risk profiles. This recommendation is based on third-party research we believe to be reliable.” At the end of the report, Zhou Lun noted, “The author's family owns BMM Corporation securities including common stocks and bonds.” The report was posted on the company's website for client access and distributed to clients via e-mail. According to the Standards of Practice Handbook, has Zhou Lun violated any CFA Institute Standards of Professional Conduct?
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Scott LaRue is a portfolio manager for Washington Advisors. Washington has developed a proprietary model that has been thoroughly researched and is known throughout the industry as the Washington model. The model is purely quantitative and screens stocks into buy, hold, and sell categories. The basic philosophy of the model is thoroughly explained to clients. The director of research frequently alters the model based on rigorous research-an aspect that is well explained to clients, although the specific alterations are not continually disclosed. Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as “buys” by the model. LaRue has conducted some research on his own and feels the model would be improved by adding some factors. Based on his research, he applied his own version of the model, which is occasionally in conflict with the Washington model. LaRue discloses his model to his own clients but not to his supervisor. LaRue is:
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Analyst made the following two statements:
·A firm claiming compliance with the GIPS standards must provide a compliant presentation and a description for any composite on the firm's list to any prospective client who makes such a request.
·A firm claiming compliance with GIPS standards is prohibited from stating that the calculation methodology used in composite presentations is also in accordance with the GIPS standards.
Is the analyst correct with respect to the:
First statement? Second statement?
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Justin Banks just won the lottery and is trying to decide between the annual cash flow payment option or the lump sum option. Justin can earn 8% at the bank and the annual cash flow option is $100,000/year, beginning today for 15 years. What is the annual cash flow option worth to Justin today?
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Consider the following graph of a distribution for the prices for various bottles of California-produced wine.
Which of the following statements is false?
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Compared to a normal distribution, a lognormal distribution is least likely to be:
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·Mean annual return 4%
·Mean excess return 8.6%
·Standard deviation of annual returns 23.4%
·Portfolio beta 1.6
The coefficient of variation and Sharpe measure, respectively, for the portfolio are closest to:
Coefficient of variation Sharpe measure
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Mei Tekei just had a birthday and is 22. When she is 27, she will receive a $100,000 inheritance. Tekei needs funds for the down payment on a co-op in Manhattan and has found a bank that will give her the present value of her inheritance amount (assuming 8.0 percent interest compounded continuously). Will the proceeds from the bank be sufficient to cover her total cost closing costs of $65,000?
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An analyst has recently determined that only 70 percent of all U.S. pension funds have holdings in hedge funds. In evaluating this probability, a random sample of 40 U.S. pension funds is taken. The number of U.S. pension funds in the sample of 40 that have hedge funds in their portfolio would most accurately be described as:
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With respect to the four major measurement scales (ratio, ordinal, interval, and nominal) the scale that represents the weakest level of measurement is the:
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Would a client making additions or withdrawals of funds most likely affect their portfolio's:
Time-weighted return? Money-weighted return?
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A fundamental analyst studying 100 potential companies for inclusion in her stock portfolio uses the following three screening criteria:
Screening Criterion Number of Companies meeting the screen
Market-to-Book Ratio>4 30
Current Ratio>2 35
Return on Equity >10% 35
Assuming that the screening criteria are independent, the probability that a given company will meet all three screening criteria is closest to:
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Using Chebyshev's inequality, what is the proportion of observations from a population of 200 that must be within three standard deviations of the mean regardless of the shape of the distribution?
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An energy analyst forecasts that the price per barrel of crude oil five years from now will range between USD$75 and USD$105. Assuming a continuous uniform distribution, the probability that the price will be less than USD$80 five years from now is closest to:
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An analyst gathered the following information about the performance of three categories of mutual funds over the same time period:
If the returns from all funds were normally distributed, the mutual fund category that minimized the probability of earning less than the risk-free rate of return is most likely category:
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For an asset with a price of 1000, which of the following price targets is least likely based on Fibonacci ratio?
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A portfolio of non-dividend-paying common stocks earned a geometric mean return of 5 percent between 1 January 2002 and 31 December 2008. The arithmetic mean return for the same period was 6 percent. If the market value of the portfolio at the beginning of 2002 was $100,000, the market value of the portfolio at the end of 2008 was closest to:
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Which of the following is not true regarding to zero economic profit?
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An analyst does research on price discrimination's impact. Compared to using a single price in a market characterized by monopolistic competition, using price discrimination when two customer groups have different demand elasticities is least likely to result in:
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According to the characteristics of consumer indifference curves, consumer indifference curves for any given individual are least likely that:
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The crowding-out model suggests that the stimulus effect of increased government expenditures will be modified by changes in real interest rates and the flow of foreign financial capital, because real interest rates will:
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Which of the following fiscal policy models is most likely to support the conclusion that the adjustment of money wages to restore full-employment equilibrium is rapid and that without the distorting effects of taxes, long-run equilibrium real output would increase with increases in the labor force and accumulated capital, and with improvements in technology?
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An expansionary fiscal policy is most likely to include a (n):
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According to the modern view of the Phillips curve, the actual inflation is 6%, while the expected inflation 5%, the most likely initial effect is that:
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For markets with perfectly elastic supply and perfectly inelastic supply, respectively, the introduction of a tax will most likely result in:
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With respect to discretionary changes in fiscal policy, the time period between the recognition of the change and the time the policy change is enacted is best described as the:
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Which of the following types of unemployment is most likely to be associated with an economy in which constant changes occur in the economy that prevent qualified unemployed people from filling existing job openings?
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Which of the following statements is most likely to characterize the principal-agent problem between buyers and sellers of services?
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The primary difference between the McCallum rule and the Taylor rule is that the McCallum rule follows the:
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Luxury Inc.'s financial statements for the year ended December 31, 2009 included the following information (in $ millions):
Cash flow from operations (CFO) for Luxury, Inc. for the year ended December 31,2009 was:
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For the year ended 31 December 2009, Dim Cool Utility Company had net income of $1,800,000. The company had an average of 600,000 shares of common stock outstanding, 20,000 shares of convertible preferred, and no other potentially dilutive securities. Each share of preferred pays a dividend of $12 per share, and each is convertible into 3 shares of the company's common stock. What is the company's diluted EPS?
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Which of the following most accurately describes a defined benefit pension plan?
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An analyst gathered the following information from a company's financial statements ($ millions):
Based only on the information above, during 2009 the company most likely decreased the:
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All else being equal, are impairment writedowns of long term asset associated with decrease in the company's:
total asset turnover debt-to-equity ratio
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A company's financial records indicate that the company entered into the following transactions at the end of 2009:
What is the most likely combined effect of the four transactions indicated above on the company's 2009 cash flow from:
Operating activities? Financing activities?
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U.S. GAAP and IFRS have converged with respect to the treatment of:
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Utility Corporation uses the LIFO inventory method, but most of the other companies in Utility's industry use FIFO. Which of the following best describes one of the adjustments that would be made to Utility's financial statements to compare that company with other companies in the industry? To adjust Utility's ending inventory, to the FIFO method, the amount reported for Utility's ending inventory should be:
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An analyst is doing the following research. The Regional Bank of Australia receives interest income on the loans it has outstanding. Luck Manufacturing Inc. also receives interest income on some surplus funds they currently have invested in corporate bonds. For each company, respectively, the interest income they receive would be classified as which type of business activity for financial reporting purposes?
The Regional Bank of Australia Luck Manufacturing Inc.
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An analyst gathered the following information about a company's common stock:
The number of common shares that should be used to calculate the company's 2009 basis earnings per share is closest to:
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An analyst gathered the following information about a company whose fiscal year ends on 31 December:
·Net income for the year was $10.5 million
·Preferred stock dividends of $2 million were paid for the year.
·Common stock dividends of $3.5 million were paid for the year.
·20 million shares of common stock were outstanding on 1 January 2009.
·The company issued 6 million new shares of common stock on 1 April 2009.
·The capital structure does not include any potentially dilutive convertible securities, options, warrants, or other contingent securities.
The company's basic earnings per share for 2009 was closest to:
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Disclosures related to the valuation allowance for changes in the carrying amount of a company's noncurrent investment securities will most likely be included in the company's:
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Moon company paid cash dividends during the year. What is the most likely effect of this transaction on the statement of cash flows?
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Which of the following adjustments to the assumed useful life and assumed salvage value of a company's assets would most likely decrease the company's total asset turnover ratio?
Assumed useful life Assumed salvage value
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For the year ended 31 December 2009, an analyst noted that a profitable company experienced an increase in deferred tax liabilities of $25,000 and a reversal of deferred tax assets of $25,000. The most appropriate conclusion by the analyst is that, in 2009, income tax expense reported on the company's income statement should be:
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On 1 January, a company entered into a capital lease resulting in an obligation of $10,000 being recorded on the balance sheet. The lessor's implicit interest rate was 12 percent. At the end of the first year of the lease, the cash flow from financing activities section of the lessee's statement of cash flows showed a use of cash of $1,300 applicable to the lease. The amount the company paid the lessor in the first year of the lease was closest to:
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An analyst suspects that a particular company's financial statements may require adjustment because the company uses throughput agreements. The most likely effect of the appropriate adjustments on the company's return on assets (ROA) and debt-to-equity ratio, respectively, would be:
ROA Debt-to-equity ratio
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An analyst developed the appropriate common-size financial statements to analyze trends over time for a company. Selected information from those common-size statements follows:
From 2006 to 2009, the company most likely experienced a (n):
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A company reported net income for the year of $100 million, but cash flow from operations was $120 million, the difference between net income and cash flow from operations most likely occurred because, during the year, the company:
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A capital lease requires rental payments of $3,000 annually. Fair value of the leased equipment at inception of the lease is $10,000 and the implicit interest rate is 15 percent. If the present value of the lease equals the fair value of the equipment at inception of the lease, the amount the lessee should record as interest expense in the second year of the lease is closest to:
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On 31 December 2009, a company issued a $20,000, 90-day note at 8 percent to pay for inventory purchased that day and issued $130,000 of long-term debt at 11 percent annually to pay for new equipment purchased that day. Using the indirect method, which of the following most accurately reflects the combined effect of both transactions on the company's statement of cash flows for the year ended 31 December 2009? Cash flow from:
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Two manufacturing companies operating in the same industry have different net fixed asset turnover ratios. The difference most likely occurs because the company with the:
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An investment project, with the same risk as the company, has an internal rate of return of 15 percent and a positive net present value of $25 million. If the projected cash inflows are reinvested at the company's weighted average cost of capital, the realized return from the project should be:
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A company is evaluating an independent investment project that has the same risk as the company. If the net present value of the project is calculated to be zero the internal rate of return associated with the project is most likely:
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The internal rate of return (IRR) method of evaluating investment projects:
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In order to measure the change in shareholder's value associated with an investment project, the most appropriate evaluation method for an analyst to use is:
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The Board of Directors at Bao Steel recently made two changes to the firm's corporate governance policies. The first change provides the firm's audit committee with the authority to approve or reject proposed non-audit engagements with Bao Steel's external audit firm. The second change creates a firewall that restricts the audit committee's access to Bao Steel's internal auditor. Are the interests of Bao Steel's shareowners likely to be best served as a result of the:
first change? second change?
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An analyst determined the following cash flows for an expansionary capital project:
The required rate of return for the project is 12%. The net present value (NPV) and profitability index for the project, respectively, are closest to:
NPV Profitability index
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A company is considering the development of land acquired as an investment more than ten years ago. If developed, the property would then be used as an additional warehouse facility by the company. The company originally paid $400,000 for the undeveloped land and the company estimates the cost to develop the land for use as a warehouse to be $250,000. Alternatively, the undeveloped land could be sold today for $600,000. To determine the warehouse facility's net present value, which of the following is the most appropriate treatment of the land's:
$400,000. original cost? $600,000 market value?
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Information about the 2009 actual results for a company and its projected sales, cost of goods sold and assets for 2010 are presented below:
Based on the projected sales increase, the best estimate of 2010 projected current assets (in $- 000s) is closest to:
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Assuming trade credit terms of 2/10 net 40, paying the supplier on the 35th day creates an annualized cost of trade credit (%) closest to:
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A company's shares are currently trading at $20 per share and its P/E ratio is 28. If it borrows money to repurchase shares at a after-tax cost of debt of 6 percent, its EPS will most likely to:
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An investor entered into a margin purchase transaction. He purchased on margin 100 shares of stock priced at $60 per share. The investor borrowed the maximum amount allowed by the initial margin requirement of 50 percent, and the maintenance margin is 30 percent. Under the requirement of margin purchase, the lowest price per share at which the stock could sell before the investor would receive a margin call is closest to:
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Which of the following statements about the implications of tests for the efficient market hypothesis (EMH) is least accurate?
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On December 31, 2009, Modern Company issued 1,000 $1,000 face-value eight percent bonds to yield seven percent. The bonds pay interest semi-annually and are due December 31, 2019. On its December 31, 2009, balance sheet Modern should record bonds payable of:
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An analyst gathered the following information about a company ($ millions):
If the company uses the direct method to prepare the 2009 statement of cash flows, the amount shown for cash received from customers (cash collections) should be closest to:
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The following information relates to a futures market contract:
If no funds are withdrawn and margin calls are met at the beginning of the next day, the ending balance on Day 3 for an investor with a short position of 10 contracts is closest to:
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Do options and futures, respectively, most directly reveal the prices or the volatility of their underlying assets?
Options Futures
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A private agreement between two parties to exchange a series of future cash flows, with at least one of the two series of cash flows determined by a later outcome, is best characterized as a (n):
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A company is long an interest rate swap with a current market value of $250,000. The company wants to terminate this swap before the expiration date. From a credit risk perspective, which is the least attractive way to terminate the swap?
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A European stock index call option has a strike price of $1,200 and a time to expiration of 0.25 years. Given a risk-free rate of 4 percent, if the underlying index is trading at $1,250 and has a multiplier of 1, then the lower bound for the option price is closest to:
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Which of these is best classified as a forward commitment?
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All other things being equal, which one of the following bonds has the greatest volatility?
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David Jordan, a level III candidate in the CFA program, is a portfolio manager with Golson Investment-Group. He manages a fixed-coupon bond portfolio with a face value of $120.75 million and a current market value of $116.46 million. Golson's research department has forecasted that interest rates are going to decrease by 50 basis points. Based on this forecast, Ranjin estimates that the portfolio's value will increase by 2.12 million if interest rates fall and will decrease by 2.07 million if interest rates rise. Which of the following choices is closest to the portfolio's dollar duration?
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For bonds that have the same maturity date and same yield to maturity, the reinvestment risk for an investor holding the bonds to maturity is greatest for the bonds that are selling at:
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An analyst gathered the following information about a corporate bond with a 12 percent coupon, 10 years to maturity and selling at 88 has a yield to maturity (YTM) of:
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Which of the following statements regarding a sinking fund provision is true? A sinking fund provision:
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If a 15-year, $1,000 U.S. semiannually zero-coupon bond is priced to yield 10 percent, what is its market price?
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An analyst notes that the yield on a 10-year corporate bond is 7.32% and the yield on a 10-year government bond is 5.60%. The relative yield spread and yield ratio, respectively, for the two bonds are closest to:
Relative yield spread Yield ratio
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If investors expect stable rates of inflation in the future, the pure expectations theory suggests that the yield curve now will be:
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A portfolio of option-free bonds is least likely to be exposed to:
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Would credit spreads most likely widen during an economic:
Contraction? Expansion?
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For a decline in interest rate, the price of a callable bond, when compared to an otherwise identical option-free bond, will most likely rise by:
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The values of nearly all bond market indexes are calculated using which of the following conventions for pricing and weighting, respectively?
Pricing Weighing
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Do hedge funds typically have a(n):
Focus on relative returns? Option-like fee structure?
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Philip Fana, CFA, gathered the following information about a real estate investment:
The mortgage loan requires level end-of-year annual payment of $67,891 and interest on the loan is tax deductible. The investment's expected after-tax cash flow in Year 1 is closest to:
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An analyst compared the performance of a hedge fund index with the performance of a major stock index over the past eight years. She noted that the hedge fund index (created from a database) had a higher average return, higher standard deviation, and higher Sharpe ratio than the stock index. All the successful funds that have been in the hedge fund database continued to accept new money over the eight-year period. Are the average return and the standard deviation, respectively, for the hedge fund index most likely overstated or understated?
Average return for Standard deviation for
the hedge fund index the hedge fund index
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When the spot price of a commodity is above the futures price, the commodity market is said to be in:
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The nominal risk-free rate of return during a given period is best described as the return, that compensates investors for the:
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Which of the following statements about the market portfolio and the capital market line (CML) is least accurate? The market portfolio:
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Which of the following statement best described the efficient frontier? It is the set of portfolios that has:
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If the risk-free rate of return is 5 percent and the market risk premium is 7 percent, the most appropriate conclusions about the value of the common stocks of Easy Company and Bravo Enterprises, respectively, are:
Easy Company common stock Bravo Enterprises common stock
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When a risk-free asset is combined with a portfolio of risky assets, will the
Standard deviation of the resulting Graph of the possible portfolio return
portfolio be a linear function of the and risk combinations display
standard deviation of the risky asset increasing incremental return per unit of
portfolio? incremental risk change?
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Which of the following should least likely be included as a constraint in an investment policy statement (IPS)?
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An analyst does research about survivorship bias and its impact to measurement ratios. Hedge fund databases and indexes that suffer from survivorship bias because of a failure to comply with performance presentation standards are most likely to overstate:
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An investor made the following information about a purchase:·Bought an office building for $500,000 using 90% financing.·The borrowing cost was 10%.·They received $29,000 at year-end from rentals.·They sold the building for $520,000 at the end of the year.Assuming a flat tax rate on income and capital gains of 25%, what was the return on equity?
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Anke Sash, CFA, is a portfolio manager. One day he buys 200 shares of Stock A at the market price of $100 on full margin. The initial margin requirement is 40 percent and the maintenance margin requirement is 25 percent. If the shares of stock later sold for $200 per share, what is the rate of return on this margin transaction for Sash?
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An analyst gathered the following information about a company:
The value of a share of the company's common stock is closest to:
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Supposing there are two stocks in a market index:Company X has 50 shares valued at $2 each.Company Y has 10 shares valued at $10 each.When the index started the price weighted index calculated out to $6, and the value-weighted index was 1.Nothing has changed except now the price of Company X's stock is selling for $4 per share. What is the price-weighted index and what is the value-weighted index?
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An analyst just received the following information for Mythical Interactions, Inc. A senior equity trader in her group wants to know if he should purchase a large block of the stock.
·Earnings retention rate at 65%
·Required rate of return, ke, of 11%
·Return on equity (ROE) of 13%, expected to remain constant
·Estimated Sales per share of $175
·Estimated EBIDTA profit margin of 22%
·Estimated Depreciation per share of $20
·Estimated Interest Expense per share of $12 Corporate Tax Rate of 40%
·Current market price is $45.50 per share
Based on the assumptions above, which of the following recommendations is correct?
The analyst should advise the trader to:
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An analyst gathered the following information for a U.S. company whose common stock is currently priced at $40 per share:
Because of the severe cyclical contraction that occurred in 2008 for a major segment of the company's operations, the analyst has decided to normalize earnings using the 2004-2007 period, if the analyst also decides to account for changes in the company's size over time, the most appropriate estimate of the company's 2008 price/earnings (P/E) ratio based on normalized earnings is:
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Which of the following is included in a present model:
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A analyst gathered the following information about a stock:·The market index value is currently 160.39.·Level of earnings for companies in the index is $23.56 for last year.·Expected growth rate of earnings is 5.6 percent.·Dividend payout ratio is a constant 45 percent.·The required return on the index is 12.2 percent.What is the expected return over the next year for the index?
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A security market with price continuity is most accurately characterized as a marketing which:
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An analyst gathered the following annual data for a company:
If the growth rate in dividends is constant, the value of a share of the company's common stock at the end of 2008 is closest to:
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Other factors being equal, which of the following values for the required rate of return and dividend growth rate, respectively, would produce the highest earnings multiplier for a stock?
Required rate of return Dividend growth rate
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Ross Dunder, CFA, is the CIO for Bling Trust (BT), an investment advisor. Dunder recently assigned one of his portfolio managers, Joey Chetch, to manage several accounts that primarily invest in thinly traded micro-cap stocks. Dunder soon notices that Chetch places many stock trades for these accounts on the last day of the month, towards the market's close. Dunder finds this trading activity unusual and speaks to Chetch who explains that the trading activity was completed at the client's request. Dunder does not investigate further. Six months later regulatory authorities sanction BT for manipulating micro-cap stock prices at month end in order to boost account values. Did Dunder violate any CFA Institute Standards of Professional Conduct?
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Which of the following is not a form of plagiarism, according to code of ethics?
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New Coal Corp. (NCC) is a small company that claims to have a proprietary formula that converts coal into a clean energy source. NCC hires Amanda Covington, CFA, to prepare a research report on the company. Amanda relies on NCC for information on the formula's effectiveness. Anxious to issue the report, he does not confirm the information with other sources. NCC widely distributes Amanda's research report and posts it on the corporate website. NCC's stock price rises from $7 to $35 per share in the following twelve months. Senior NCC management takes the opportunity to sell all of their company shares. According to the Standards of Practice Handbook, did Amanda violate any CFA Institute Standards of Professional Conduct?
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Walter Ford, CFA, is asked to review his firm's soft dollar practices. As part of the review, he notes that his firm has failed to disclose the practices to the firm's clients in writing as required by law. Walter quickly prepares and distributes the appropriate disclosure. He does not report the firm's violation to the appropriate regulatory authority. According to the Standards of Practice Handbook, by not reporting the violation to the regulatory authority, has Walter violated any CFA Institute Standards of Professional Conduct?
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Miranda Grafton, CFA, purchased a large block of stock on behalf of specific accounts she managed. The stock realized a significant gain in value before the close of business, so Grafton reviewed her accounts again to determine where the block shares should be allocated. According to the Standards of Practice Handbook, Grafton's most appropriate action is to allocate the shares to:
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Zhao Wei, CFA, is a well-known and respected analyst who follows the financial software industry. He learns that a small, relatively unknown company whose shares are traded over the counter has just signed significant contracts with some of the companies he follows. After further investigation, Zhao Wei decides to write a research report on the company and recommend purchase. While the report is being reviewed by his supervisor for factual accuracy, Zhao Wei schedules a dinner party with several of his best clients to discuss the company. At the dinner party, he mentions the purchase recommendation that is scheduled to be sent out early the following week to all the firm's clients. According to the Standards of Practice Handbook, has Zhao Wei violated any CFA Institute Standards with respect to:
fair dealing? preservation of confidentiality?
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Zhang Min, CFA, a portfolio manager managing an index fund in a large asset management company. What is his most appropriate action?
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Jeffery Jones is a Level II candidate in the CFA Program. She receives an e-mail from a co-worker who offers to sell her ten unpublished Level II exam questions that the co-worker assures her will be on the next exam. Jeffery does not respond and deletes the e-mail. According to the Standards of Practice Handbook, did Jeffery violate any CFA Institute Standards of Professional Conduct?
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Amy Wong, CFA, included in her firm's marketing materials several plain-language descriptions of general investment concepts such as standard deviation and duration, which were copied from other sources without reference to the original author. According to the Standards of Practice Handbook, has Amy violated the Standard relating to misrepresentation?
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In order to comply with the GIPS Standards, a firm must initially show GIPS-compliant history for a minimum of:
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Kelly Stargate, CFA, runs a small investment management firm. Kelly's firm subscribes to a service from a large investment research firm that provides research reports that can be repackaged as in-house research by smaller firms. Kelly's firm distributes these reports to clients with specific references as to their source and author. According to the Standards of Practice Handbook, has Kelly violated the standard relating to misrepresentation?
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Bart Wiley, CFA, has decided to revise his firm's written compliance manual. He checks with counsel regarding changes to applicable laws, rules, and regulations. He incorporates these changes as well as changes to the Code and Standards in the new version end distributes copies to his staff along with a memorandum. The memorandum states that the updated manual includes compliance procedures designed to meet industry standards, regulatory requirements, requirements of the Code and Standards, and circumstances of the firm. According to the Standards of Practice Handbook, did Wiley violate any Standard of Professional Conduct?
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According to the Standards of Practice Handbook, gifts to members from which of the following sources are least likely to create a loss of independence and objectivity?
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Firms claiming compliance with the GIPS Standards are least likely to be required to:
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Zhang Li, CFA, supervises individuals working on the bond trading desk at a large investment management firm. Zhang Li has discovered that Liu Mo, a bond trader under his supervisory has been accepting lavish gifts from one of the firm's brokers. Zhang Li has also noticed that Liu Mo has been executing more than the usual amount of trades through this particular broker, and she suspects that he has not been receiving best execution for the firm's clients. Zhang Li immediately initiates an investigation to determine the extent of Liu Mo's wrongdoing. According to the Standards of Practice Handbook, pending the outcome of this investigation, Zhang Li's best course of action is to:
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For years John Berger, a CFA charterholder and CEO of a company, relied upon a set of reasonable procedures for preventing violations of the Code and Standards of Professional Conduct in the firm. To not be liable for a violation of the Standards, Berger must:
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According to the Standards of Practice Handbook, in order to fulfill the basic provision and procedure of the suitability standards, should a client's written investment polity statement (IPS):
Take performance measurement Be reviewed at least annually?
benchmarks into consideration?
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An analyst meets with a new client. During the meeting, the analyst sees that the new client's portfolio is heavily invested in one over-the-counter stock. The analyst has been following the stock and thinks it will perform well in the long run. The analyst arranges through a brokerage firm to simultaneously sell a large number of shares of the stock via a series of cross trades from the new client's portfolio to various existing clients. He arranges the trades to be executed at a price that approximates the current market price. This action is:
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An analyst gathered the following information about the monthly returns over the same time period from two diversified investment portfolios:
The analyst stated that Portfolio X is negatively skewed and Portfolio Y is positively skewed. Is the analyst correct with respect to:
Portfolio X? Portfolio Y?
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A pension fund expects to pay obligations of $5, 000, 000 4 years from today. The fund will fund this obligation by making 5 annual, equal deposits into an account earning 3%, with the first deposit occurring today, and the last occurring at the time the obligation is due. What size must each annual deposit be?
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An analyst stated that the mean of the standard normal distribution always has a value of zero but that the standard deviation of the standard normal distribution can take on a value from 0 to 1.0. Is the analyst correct with respect to the value of the standard normal distribution's:
Mean? Standard deviation?
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On 1 January 2009, an institutional investor's portfolio is valued at $10,000,000. The investor wants to make a donation to charity on 31 December 2009, but does not want the year-end portfolio value to fall below $10,000,000. The expected annual return on the investor's existing portfolio is 10 percent with a variance of 0.0144. If the investor wants a safety-first ratio of at least 0.5, the maximum amount the investor should plan to donate is closest to:
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The scale-free measure of relative dispersion that is useful in making direct comparisons among different asset classes is the:
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A U.S. Treasury Bill with a face value of $100,000 and 256 days until maturity is selling for $ 94,300. The money market yield on this security is closest to:
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Use the below table, containing average annual returns for eleven investment managers.
Which of the following is the median return for this group?
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Which of the following statements used to describe the Student's t-distribution is least accurate? The Student's t-distribution:
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An investor currently holds the following portfolio of common stocks:
The expected correlation of returns between Stock 1 and Stock 2 is +0.60. The investor sells Stock 2 and uses the $60,000 proceeds to purchase another stock that has the same expected annual return and standard deviation of returns as Stock 2, but has an expected correlation of returns with Stock 1 of +0.55. Will the investor's action increase the portfolio's expected:
annual return? standard deviation of return?
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Which of the following decisions by analyst would most accurately describe a Type II error?
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You believe that the likelihood of bankruptcy is 30% for Rusty Roof Supply. You also believe that Home Pedot has a 20% of entering bankruptcy. You believe that the two events are independent. What is the probability that at least one of the companies will enter bankruptcy?
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A 182-day U.S. Treasury bill has a face value of $100,000 and currently sells for $98,500. Which of the following yields is most likely the lowest?
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Which of the following is most likely used by technicians to measure inter-market relationships?
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Which of the following would least likely be categorized as a multivariate distribution?
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According to the crowding-out model, persistent, large government budget deficits are most likely to be associated with a(n):
-
Based on historical data and assuming less-than-full employment, periods of sharp acceleration in the growth rate of the money supply tend to be associated initially with:
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Allen Chen, CFA, stated that, for the typical company, accounting profit tends to be greater than economic profit because explicit costs are generally not included in calculating accounting profit. Is the analyst correct with respect to the:
Relationship between
accounting profit and economic profit? Inclusion of explicit costs?
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In recently years, financial innovation and growth in real GDP increase the demand for money. Is this statement respectively correct?
Financial innovation? Growth in real GDP?
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The following fiscal programs is likely to act as an automatic stabilizer during periods of economic recession and boom, except:
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Nominal gross domestic product (GDP) in 2008 is $3.2 billion, up from $2.6 billion in 2000. The 2000 CPI is 100 and the CPI is 116.3. What is the change in real GDP over the period in percentage terms?
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In a regulated industry, the introduction of a marginal cost pricing rule that maximizes total surplus would most likely be viewed as:
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An analyst does research about the impact of gap between money demand and money supply. When the quantity of money supplied by the banking system exceeds the quantity of money demanded at the current interest rate, investors will most likely:
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If a regulatory agency intervenes to reduce prices, a monopoly will most likely expand output to the level where:
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Which of the following statements about price elasticity is most likely false?
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In regard to the relation between output and costs in the short-run, a decline in the marginal cost most likely occurs at what level of production?
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The most likely objective of government regulation of a natural monopoly is to:
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An analyst checked the financial information of a profitable company named York Corporation. The company began offering a warranty on a new product introduced during the year, accruing warranty expenses of $400,000. The actual expenditures for repairs under this warranty during the year were $100,000. The company's tax rate was 30 percent. With respect to the new product warranty only, the most likely amount and classification of deferred tax recorded was a(n):
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A company reported net income of $135 million and cash flow from operations of $110 million. The most likely explanation for net income being larger than cash flow from operations is that the company:
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During August, a company recorded the following transactions:
·Aug 1 Inventory 30 units @ $5.00
·Aug 8 Purchased 60 units @ $5.20
·Aug 14 Sold 45 units @ $7.00
·Aug 23 Purchased 30 units @ $ 5.40
·Aug 28 Sold 35 units @ $7.20
If periodic FIFO inventory costing method is adopted, what is gross profit for August?
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At the beginning of the year 2009, a lessee company entered into a new capital lease agreement. The lease payments are $100,000 annually and are due at the end of each year for five year. The appropriate discount rate is 12 percent. Depreciation is on a straight-line basis with zero salvage value. With respect to the effect of the lease on the company's financial statements in the first year of the lease, which of the following is most accurate? The reduction in the company's:
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An analyst does research about the ratio impact between LIFO inventory method and FIFO inventory method. Compared with the company using the FIFO inventory method during a period of rising prices and stable inventory quantities, the use of LIFO by that company will most likely result in:
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Which of the following statements regarding revenue recognition is least accurate?
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An analyst has gathered the following data about a company:
·Average receivables collection period of 37 days
·Average payables payment period of 31 days
·Average inventory processing period of 46 days
What is their cash conversion cycle?
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An analyst has tested LIFO and FIFO inventory method's impact to a company's ratio and gathered the following information about FYK Manufacturing Corporation ($ million):
Using the FIFO inventory method compared with LIFO, would FYK Manufacturing Corporation's 2009 gross profit margin and current ratio, respectively?
Gross profit margin using FIFO Current ratio using FIFO
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A firm's financial statements reflect the following:
Which of the following is the closest estimate of the firm's sustainable growth rate?
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An analyst gathered the following information about the Metron company:
·Net income equals $15,000
·5,000 shares of common stock issued on January 1, 2009
·10 percent stock dividend issued on June 1, 2009
·1000 shares of common stock were repurchased on July 1, 2009
·1000 shares of 10 percent, par $100 preferred stock each convertible into 8 shares of common were outstanding the whole year 2009
How many common shares should be used in computing the company's basic earnings per share (EPS)?
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A company reported a large increase in gross profit margin compared to the prior year. The large increase in gross profit margin most likely resulted from a reduction in:
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An analyst gathered the following information about a company for 2009:
The bonds were issued at par and can be converted into 400,000 common shares. All securities were outstanding for the entire year. Diluted earnings per share for the company for 2009 are closest to:
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The Lorry Supply Company uses LIFO inventory valuation. Lorry Supply had a cost of goods sold of $1 million for the period. The inventory at the beginning of the period was $0.5 million and the inventory at the end of the period was $0.6. Lorry Supply's LIFO reserve was $0.1 million for the previous year and $0.2 for the current year. What is Lorry Supply's cost of goods sold according to FIFO inventory valuation?
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On December 31, 2008, Alliance, Inc. executed an eight-year lease with annual payments of $600,000 beginning December 31, 2009 for factory equipment. The economic life of the equipment was 12 years. The interest rate implicit in the lease was eight percent. Alliance may purchase the equipment at the end of the lease at the then-current fair market value of the equipment. The fair market value of the equipment on December 31, 2008 was $3,500,000.
In its Statement of Cash Flows for the year ended December 31, 2009, Alliance should include the following related to the above transaction:
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If a firm has a FIFO inventory of 9000 and a LIFO inventory of 6500, what is the value of the LIFO reserve, adjusted retained earnings, and deferred tax liabilities on a FIFO basis assuming a 40 percent tax rate?
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Selected information from SAG Corp's financial activities in the year 2009 is as follows:
·Net income was $7,650,000.
·1,100,000 shares of common stock were outstanding on January 1.
·The average market price per share was $62 in 2009.
·Dividends were paid in 2009.
·The tax rate was 40 percent.
·10,000 shares of 6 percent $1,000 par value preferred shares convertible into common shares at a rate of 20 common shares for each preferred share were outstanding for the entire year.
·70,000 options, which allow the holder to purchase 10 shares of common stock at an exercise price of $50 per common share, were outstanding the entire year.
SAG Corp's Diluted earnings per share (Diluted EPS) was closest to:
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A firm is purchasing a new file server for $680,000, with a 4-year expected life and a salvage value of $50,000. It is expected that the new server will generate an additional $200,000 in revenue each year. The firm will use the straight line method to depreciate the server for financial reporting, but the sum-of-year's digits (SYD) method for tax purposes. How much tax will be payable in year two, assuming a 35 percent tax rate?
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A company reported deferred tax liabilities of $500,000 and deferred tax assets of $350,000. If tax rates change and the company continues to grow, using the liability method of accounting for deferred taxes will most likely result in:
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The Lather Corporation entered into a lease for 5 years that requires payments of $10,000 per year. If the lease is classified as a capital lease, what is the amount recorded as debt for this lease at the end of one period if the appropriate discount rate is 10 percent?
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An analyst gathered the following information about a company:
If the company's net income for the year is $2.8 million, diluted earnings per share is closest to:
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ADREN Company purchased a deliver truck for $77,500 in 2009. ADREN expected to use the truck for 8 years, and estimated the salvage value to be $5,600. Additionally, ADREN estimated driving the truck 400,000 kilometers while they owned it. If in 2010 ADREN drives the delivery truck 44,000 kilometers, the depreciation expense under straight-line and units-of-production methods, respectively, would be closest to:
Straight-line method Units-of-production method
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Coats Corporation generates $10,000,000 in sales. Its variable costs equal 85 percent of sales, and its fixed costs are $500,000. Therefore, the company's earnings before taxes (EBIT) equal $1,000,000. The company estimates that if its sales were to increase 10 percent, its net income and EPS would increase 17.5 percent. What is the company's interest expense? (Assume that the change in sales would have no effect on the company's tax rate.)
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Are unrealized gains and losses on available-for-sale securities reported in the:
Statement of comprehensive income? Statement of stockholders' Equity?
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Williams Warehousing currently has a warehouse lease that calls for annual payments of $120,000 over the next 5 years. The warehouse owner, who needs cash, is offering Williams a deal wherein Williams will pay $200,000 during the current year and then pay only $80,000 over the remaining 4 years. (Assume that all lease payments are made at the beginning of the year.) Should Williams Warehousing accept the offer if its required rate of return is 9 percent, and why?
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According to capital budgeting, which of the following statements is accurate?
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An analyst does research about corporate governance. The interests of a company's shareowners are least likely to be served if that company's executive management compensation program:
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In calculating the weighted average cost of capital (WACC), which of the following statements is least accurate?
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The following data is regarding the Link Company:
·A target debt/equity ratio of 0.5
·Bonds are currently yielding 10%
·Link is a constant growth firm that just paid a dividend of $3.00
·Stock sells for $31.50 per share, and has a growth rate of 5%
·Marginal tax rate is 40%
What is Link's after-tax cost of capital?
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An analyst does research about capital investment project. A company is evaluating a capital investment project that has the same risk as the company. The project is expected to generate end-of-year, after-tax cash flows of €2 million each year for five years. The company's cost of equity capital is 15 percent, and the company's weighted average cost of capital is 10.4 percent. If the project's profitability index is equal to 1.0, the initial investment for that project is closest to:
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Forand Co. currently sells 2 million units at $350 per unit. Fixed operating costs are $100 million and variable operating costs are $150 per unit. If Forand pays $40 million in interest, the sales level at the operating breakeven and total breakeven points are?
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A large corporation accepts a project which generates no revenue and has a negative net present value. The project most likely is classified in which of the following categories?
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Which of the following is the most likely result of an internally, financed cash dividend?
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An analyst determines the following cash flows for a capital project:
The required rate of return for the project is 13 percent. The net present value (NPV) of the project is closest to:
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An analyst gathered the following data about common stocks J, K, and L, which together form a value-weighted index:
*Two-for-one stock split
The value-weighted index (base index=100) at the end of 2009 is closest to:
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An analyst gathered the following information about a common stock:
If the stock's annual dividend is expected to remain at $2.10, the value of the stock is closest to:
-
With respect to the informational efficiency of markets, is the ability to correct the mispricing of assets likely to weakened if:
Short sales The amount of capital allocated
are restricted? to arbitrage activities decrease?
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An analyst does research about ratio impact according to the dividend discount model. With respect to the inputs used in the dividend discount model, an increase in a company's growth rate is least likely to be associated with an increase in that company's:
-
An analyst gathered the following information about a company's common stock.
If markets are in equilibrium, the expected constant dividend growth rate is closest to:
-
An analyst does research about tangible book value for the company. With respect to the computation of the price to book value ratio for a company's common stock, an appropriate estimate of tangible book value for the company could most likely exclude the value of:
-
If an analyst want to take into consideration most of the differences among companies with respect to quality of earnings, he can use:
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An analyst wants to calculate an appropriate price to earnings (P/E) ratio for a company that operated in a cyclical industry. The analyst determined that the company's average return on equity was 14.5 percent during the four-year period ending in 2008, and that the company's book value per share was $9.8 at the beginning of that period but had increased to $13.58 in 2008. If the company's stock is priced at $50 per share, the appropriate P/E is closest to:
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An analyst does research about various price multiple. For a given company, the price multiple that is least likely to be negative is the:
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On 1 January 2009, a company had 1.6 million shares of common stock outstanding. Which of the following statements about the calculation of that company's 2009 earnings per share is most accurate? Assuming no other transactions involving common shares during 2009, the number of shares used to calculate 2009 earnings per share will be equal to:
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A security market in which all the bids and asks for a stock are gathered to arrive at a single price that satisfies most of the orders is best described as a:
-
An analyst does research about common stock valuation and gathered the following annual information about a company:
If the 2008 growth rate is expected to remain constant, the value of a share of the company's common stock is closest to:
-
An analyst gathered the following information about three common stock that all have the same dividend payout ratio:
The lowest earnings multiplier (price earnings ratio) would most likely be associated with stock:
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With respect to the value of a call option at expiration, which of the following statements is least accurate?
-
Which is least likely to be true? Forward contracts:
-
If left open until expiration, the type of futures contract that is most likely to be settled in cash is:
-
Prior to expiration, the maximum value of an Americana call option and an American put option, respectively, is closest to the:
American put option American call option
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The term (maturity) of a forward rate agreement is 90 days and the underlying rate is 180-day LIBOR. If 180-day LIBOR increases over the term (life) of the contract, which of the following best describes the descriptive notation for the contract and the party receiving payment at expiration, respectively?
Descriptive notation Party receiving payment at expiration
-
A plain vanilla interest rate swap is a contract where one party pays a:
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A company issued a $1,000 face value bond on 1 January. The annual coupon rate on the bond is 12 percent, interest is paid semiannually, and the bond matures in five years. The market rate of interest when the bond was issued was 8 percent on an annual basis. The amount of the initially liability recorded and the interest expense recorded on the first coupon payment date, respectively, were closest to:
Amount of the initial liability recorded Interest expense recorded on the first
coupon payment date
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A fixed income portfolio manager wants to take advantage of a forecast decline in interest rates over the next several, months. Which of the following combinations of maturity and coupon rate would most likely result in the largest increase in portfolio value?
Maturity Coupon rate
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A newly issued ten-year option-free bond is valued at par on 1 June 2005. The bond has an annual coupon of 8.0 percent. On 1 June 2008, the bond has a yield to maturity of 7.1 percent. The first coupon is reinvested at 8.0 percent and the second coupon is reinvested at 7.0 percent. The future price of the bond on 1 June 2008 is closest to:
-
All else being equal, the ceiling on a floating-rate security is most likely to benefit the:
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A 5 percent, semi-annual pay bond with a par value of $1,000 matures in 10 years and is selling for $925.61, for a percent yield to maturity. Over the life of the bond, the reinvestment income that must be earned in order to realize the 6 percent yield is closest to:
-
Do Treasury inflation protection securities (TIPS) issued by the U.S. Department of the Treasury have:
Fixed par values? Fixed coupon Payment amounts?
-
A 6 percent coupon bond with a par value of $1,000 matures in three years and pays interest semiannually. Using an annual discount rate of 4.5 percent, the price of the bond is closest to:
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An analyst gathered the following information about two option-free bonds that each have a par value of $1,000:
Bond 1 Bond 2
Time to maturity 5years 10years
Annual coupon rate 5.0% 7.0%
Discount rate today 6.0% 6.5%
If the discount rate does not change for rather bond, one year from today, which of the following most likely describes the change in price for each bond?
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Which of the following statements regarding zero-coupon bonds and spot interest rates is most accurate?
-
Which of the following provides the most protection to a bondholder?
-
Which embedded option is most beneficial to a bond issuer?
-
The most relevant definition for duration is:
-
With respect to closed-end investment companies, generally they:
-
Kelly, CFA, want to buy ETFs that invest in index futures contracts and other derivatives, which of the following types of risk is unique to it, compared with other exchange traded funds (ETFs)?
-
An analyst gathered the following information about a rental property:
After-tax cash flow is closet to:
-
Compared to investing in a single hedge fund, an individual investing in a fund of funds is lease likely to obtain:
-
In discussing the characteristics of exchange traded funds (ETFs) in markets where capital gains are taxed, and analyst made the following statements:
Are the analyst's statements correct?
Statement 1 Statement 2
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An investor taking a long position in commodity futures while simultaneously investing in government securities has created a:
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An analyst gathered the following information about stock A and the market index:
Based only on the information above, the analyst's most appropriate conclusion is that the stock is:
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An investor currently holds a portfolio that is expected to return 15 percent. The investor is planning to sell one of the securities included in the current portfolio that has an expected return of 13 percent and use the proceeds to purchase a security that has an expected return of 14 percent. Compared to the investor's current portfolio, the expected return for the investor's revised portfolio will be:
-
Robert Johnson, CFA, is considering the purchase of two stocks from different industry. Each stock has an expected return of 12.5 percent and an expected standard deviation of returns of 16 percent. Which of the following statements Johnson said about the two stocks is most accurate?
-
All else equal, as the correlation of returns among a set of securities decrease, will a portfolio composed of those securities most likely experience an increase in expected:
Return? Risk?
-
An investor holds a portfolio of two stocks, ABC Inc., and XYZ Corp., and is considering adding the stock of New Company to her portfolio. For diversification purposes, the most important factor for her consider where making this decision is:
-
Which of the following is least likely considered a source of systematic risk for bonds?
-
Which of the following statements about the CFA Institute's Professional Conduct Program (PCP) is least accurate?
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Robert Miguel, CFA, is a portfolio manager for a large investment advisory firm. In appreciation of his impressive portfolio returns last quarter, one of his clients, Kevin Goodman, has invited Miguel and his wife to be his guests at his luxury suite for a major league baseball playoff game. Miguel, a baseball fan, accepts the invitation and attends the game. The next day at work, Miguel doesn't mention to his supervisor that he attended the game as a guest of the client. According to the Standard concerning independence and objectivity and the Standard on knowledge of the law, Miguel's actions are in violation of."
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Ann Smith, CFA, calls Bill Jones, CFA, and tells him that her research shows that Biokem Company is underpriced and that earnings per share will exceed $3.00 this year. Jones had never heard of Biokem before her call but knows that Smith is widely considered to be the best analyst in her sector. Smith's research has been released publicly, and Smith tells Jones he's "welcome to it." After their conversation, Jones arranges a conference call with his firm's portfolio managers and announces that Biokem is underpriced and will likely earn over $3.00 per share this year. During the call with the portfolio managers, Jones does not reference his conversation with Smith. According to the Standards that concern misrepresentation and diligence and reasonable basis, Jones violated:
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Doug Watson, CFA, serves in a sales position at Sommerset Brokerage, a registered investment adviser. As part of his employment, he is expected to entertain clients. Frequently at these client outings, Watson drinks excessively. On one occasion, after dropping off a client, Watson was cited by local police for misdemeanor public intoxication. According to the Standard on knowledge of the law and the Standard on misconduct, Watson is in violation of:
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Kevin Richards is a performance analyst for Reliable Advisors, a retail investment advisory and consulting firm. Richards, who is a Level I CFA candidate, was hired-as part of the firm's efforts to attract CFA candidates into critical areas of the firm, such as performance measurement and attribution. Richards' supervisor instructs him to reference the firm's compliance with GIPS in marketing materials to attract more clients. For Richards' reference to the firm's GIPS compliance to be accurate, Reliable is least likely required to:
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Peter Taylor, a CFA charterholder and a food industry analyst for a large investment firm, has been invited by Sweet Pineapple Co. to visit the firm's processing plants in Hawaii. The Standard concerning independence and objectivity recommends that Taylor:
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Ruth Brett, a Level I CFA candidate, is a research analyst for a large investment firm. Due to a demanding work schedule with long hours, Brett was unable to attend any sort of exam preparation class, and has only been able to study sporadically. Feeling nervous and unprepared the night before the exam, Brett writes a few key notes on the bottom of her shoe. At the exam, Brett sees the large number of proctors present and decides not to risk getting caught and does not look at her shoe. According to the CFA Institute Code of Ethics and Standards of Professional Conduct, Brett is:
-
Which of the following is least likely included in the CFA Code of Ethics? Members of CFA Institute must:
-
In formulating her report on GammaCorp's common stock, Barb Kramer, CFA, did a complex series of statistical tests on the company's past sales and earnings. Based on this statistical study, Kramer stated in her report that, "GammaCorp's earnings growth for the next five years will average 15% per year." Her conclusion was based in part on a regression analysis with a high level of statistical significance. Has Kramer violated the Standard on communication with clients and prospective clients?
-
Alpha Advisors Inc. is an investment management firm with a client base that ranges from individuals to large foundations. Which of the following firm policies is least appropriate if Alpha adopts the Code and Standards? Alpha:
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Dudley Thompson is a bond salesman for a small broker/dealer in London. His firm is the lead underwriter on a new junk bond issue for the Ibex Corporation. In order to stimulate sales of the new issue, Thompson calls all of his accounts over ￡1,000,000, many of which belong to elderly clients with low risk tolerances, and tells them that the Ibex issue is a fantastic opportunity for high returns that is not to be missed. Thompson also posts overly optimistic projections for Ibex's performance on several Internet "chat rooms" in order to increase the price of the bond issue and enhance his clients' returns on the investment. According to the Standards concerning market manipulation and suitability, Watson is in violation of:
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Rob Elliott, a CFA candidate, is an analyst with a large asset management firm. His personal portfolio includes a large amount of common stock of TECH Inc., a semiconductor company which his firm does not currently follow. The director of the research department has just asked Elliott to analyze TECH and write a report about its investment potential, which will be distributed to clients and prospective clients. Based on the CFA Institute Standards of Professional Conduct, the most appropriate course of action for Elliot to take would be to:
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Antonio Mendoza, CFA, is an investment manager in private practice under the name Mendoza Investments. Mendoza solicits new business by making brief presentations describing his investment performance record. At each presentation, he makes available a 1-page information sheet that outlines his performance history for the past ten years. His telephone number is on the sheet for prospective clients who wish to contact him for additional supporting information. At the bottom of the sheet the following is stated: "Mendoza Investments has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS?).'' Mendoza's information sheet:
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Anne Franklin, CFA, is an analyst who covers technology stocks for Medallion Investments. Franklin frequently meets with company management and makes site visits to company facilities. Cynthia Lucas, chief technology officer for Level Tech, tells several analysts, including Franklin, during a conference call that overseas shipments of the company's important new product are going to be delayed due to manufacturing defects, which she expects are correctable. This information has not been released in any other format. Medallion manages discretionary accounts for Lucas and Franklin. Subsequent to her meeting, Franklin sends a note to Medallion's investment personnel telling them to "sell the stock in all client accounts," as the shipment information is significant and contrary to recent earnings guidance from the company. Franklin's use of the information received from Lucas:
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R.J. Young is meeting with a new client for the first time. At this meeting, he will be gathering information about the client in order to assess the client's investment objectives and constraints. As he does for all of his clients, Young will then prepare a written investment policy statement (IPS). According to the recommended procedures for complying with the Standard on suitability, which of the following statements regarding an IPS is least accurate?
-
Sue Johnson, CFA, has an elderly client with a very large asset base. The client intends to start divesting her fortune to various charities. Johnson is on the Board of a local charitable foundation. Johnson most appropriately:
-
According to the Standard related to loyalty, prudence, and care, which of the following statements regarding the voting of proxies on client holdings is least accurate?
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Alvin Gold, CFA, resides in Country T and does business as an investment advisor primarily in Country U. Country T allows trading on non-public information and does not require disclosure of referral fees. Country U prohibits trading on non-public information only if it is gained by illegal means and requires disclosure of referral fees of over $100 (U.S. equivalent). Gold accepts a referral fee of $75, and in the course of a meeting with two other analysts and the firm's CFO, Gold receives material non-public information. To comply with the Code and Standards, Gold:
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Three years from now, an investor will deposit the first of eight $1,000 payments into a special fund. The fund will earn interest at the rate of 5% per year until the third deposit is made. Thereafter, the fund will return a reduced interest rate of 4% compounded annually until the final deposit is made. How much money will the investor have in the fund at the end of ten years assuming no withdrawals are made?
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An investor places $5,000 in an account. The stated annual interest rate is 6% compounded monthly. The value of the account at the end of three years is closest to:
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Compared to a t-distribution with 10 degrees of freedom, and compared to a normal distribution, a t-distribution with 20 degrees of freedom and the same variance has:
Compared to df = 10 Compared to normal
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The initial market value of a portfolio was $100,000. One year later the portfolio was valued at $90,000 and two years later at $99,000. The geometric mean annual return excluding any dividend income is closest to:
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A college endowment fund has $150 million. The fund manager intends to withdraw $2 million from the fund for operations, and she has a minimum year-end acceptable level of $151 million. The fund has two choices for the portfolio. The endowment manager can choose Portfolio X, which has an expected return of 10% and a standard deviation of 14%, or Portfolio Y, which has an expected return of 12% and a standard deviation of 20%. Given this scenario, which of the following statements regarding Roy's safety-first criterion is most accurate?
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An investor purchases 500 shares of Nevada Industries common stock for $22.00 per share today. At t = 1 year, this investor receives a $0.42 per share dividend (which is not reinvested) on the 500 shares and purchases an additional 500 shares for $24.75 per share. At t = 2 years, he receives another $0.42 (not reinvested) per share dividend on 1,000 shares and purchases 600 more shares for $31.25 per share. At t = 3 years, he sells 1,000 of the shares for $35.50 per share and the remaining 600 shares at $36.00 per share, but receives no dividends. Assuming no commissions or taxes, the money-weighted rate of return received on this investment is closest to:
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The "up-move factor" in a binomial tree is best described as:
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Jane Acompora is calculating equivalent annualized yields based on the 1.3% holding period yield of a 90-day loan. The correct ordering of the annual money market yield (MMY), effective annual yield (EAY), and bond equivalent yield (BEY) is:
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An analyst develops the following probability distribution for the states of the economy and market returns.
Which of the following statements about this probability distribution is least accurate?
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An analyst estimates a stock has a 40% probability of earning a 10% return, a 40% probability of earning a 12.5% return, and a 20% probability of earning a 30% return. The stock's standard deviation of returns based on this returns model is closest to:
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An investment manager has a pool of five security analysts he can choose from to cover three different industries. In how many different ways can the manager assign one analyst to each industry?
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Shortfall risk is best described as the probability:
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If a two-tailed hypothesis test has a 5% probability of rejecting the null hypothesis when the null is true, it is most likely that the:
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Which of the following statements about hypothesis testing is most accurate?
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A business cycle theory developed by applying utility theory and budget constraints to macroeconomic models is most closely associated with which school of economic thought?
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A loss of economic efficiency from price regulation is least likely to result from a:
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Consider the following foreign exchange and interest rate information:
·Spot rate: 1.3382 USD/EUR.
·One year riskless USD rate = 2.5%.
·One year riskless EUR rate = 3.5%.
The one-year arbitrage-free forward exchange rate is closest to:
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Monthly demand for gasoline at a particular location, as a function of the price of gasoline and the price of bus travel, is given (in hundreds of gallons) as QD = 300 - 15 Pgas + 2 Pbus" The slope of the demand curve for gasoline is closest to:
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Which of the following statements about monopolists is most accurate?
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A central bank's ability to achieve its policy goals is most likely to be limited by available resources when which of the following actual rates is below its target rate?
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Which of the following statements regarding the money supply and determination of short-term interest rates is least accurate?
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What are the most likely effects on aggregate demand in the current period of an increase in expected future incomes and of an increase in the money supply?
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Incorrect production decisions are most likely to occur when the inflation rate is:
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The source of comparative advantage, according to the Heckscher-Ohlin model of international trade, is each country's:
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Under which market structure is the profit maximizing strategy to produce the quantity of output for which the price is equal to marginal cost?
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Which of the following statements about elasticity is least accurate?
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Which of the following statements about nonrecurring items is most accurate?
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On January 31, Dowling Inc. borrowed funds to purchase capital equipment for its business operations. On the same day, it also recorded the cost of salaries incurred to January 31, which will be paid on February 6. When these two transactions are recorded on January 31, the financial statement item that will increase the most is:
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Under U.S. GAAP, which of the following statements about classifying cash flows is most accurate?
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Kimberwick Technologies reported the following information for the year ending December 31.
If the cash balance increased $13,000 over the year, cash flow from operations (CFO) is closest to:
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A company has a cash conversion cycle of 80 days. If the company's average receivables turnover increases from 11 to 12, the company's cash conversion cycle:
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Which of the following statements about a United States public corporation's annual reports, SEC filings, and press releases is most accurate?
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A company had the following changes in its stock:
·The company had 2 million shares outstanding on December 31, 20X6.
·On March 31,20X7, the company paid a 10% stock dividend.
·On June 30,20X7, the company sold $10 million face value of 7% convertible debentures, convertible into common at $5 per share.
·On September 30,20X7, the company issued and sold 100,000 shares of common stock.
The company should compute its 20X7 basic earnings per share based on:
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When a used delivery truck is sold, the gain or loss on disposal is most accurately stated as:
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Haltata Turf & Sod currently uses the first in, first out (FIFO) method to account for inventory. Due to significant tax-loss carry forwards, the company has an effective tax rate of zero. Prices are rising and inventory quantities are stable. If the company were to use last in, first out (LIFO) instead of FIFO:
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Which of the following effects is most likely to occur when using ratio screens for high dividend yield stocks and low P/E stocks, respectively?
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The ratio of operating cash flow to net income (the cash flow earnings index) is least likely be an "accounting red flag" when it is:
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A firm that reports under IFRS is producing under a long-term contract for which it cannot measure the outcome reliably. In the first year of the contract, the firm has spent €300,000 and collected €200,000 in cash. What amounts related to this contract should the firm recognize on its income statement for the year?
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Which of the following statements about the role of depreciable lives and salvage values in the computation of depreciation expenses for financial reporting is most accurate?
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A company's investments in marketable securities include a 3-year tax-exempt bond classified as held-to-maturity and a 5-year Treasury note classified as available-for-sale. On its income statement, the company should report the coupon interest received from:
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Acme Corp. purchased a new stamping machine for $100,000, paid $10,000 for shipping, and paid $5,000 to have it installed in their plant. Based on an estimated salvage value of $25,000 and an economic life of six years, the difference between straight-line depreciation and double-declining balance depreciation in the second year of the asset's life is closest to:
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How will a firm's operating cash flow be affected by a decrease in accounts receivable and by an increase in accounts payable?
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From the point of view of a financial analyst, when evaluating companies that use different inventory cost assumptions, in a period of:
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In general, as compared to companies with operating leases, companies with finance leases report:
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Longboat, Inc. sold a luxury passenger boat from its inventory on December 31 for $2,000,000. It is estimated that Longboat will incur $100,000 in warranty expenses during its 5-year warranty period. Longboat's tax rate is 30%. To account for the tax implications of the warranty obligation prior to incurring warranty expenses, Longboat should:
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During 20X3, Rory, Inc., reported net income of $15,000 and had 2,000 shares of common stock outstanding for the entire year. Rory also had 2,000 shares of 10%, $50 par value preferred stock outstanding during 20X3. During 20X1, Rory issued 100, $1,000 par, 6% bonds for $100,000. Each of these is convertible to 50 shares of common stock. Rory's tax rate is 40%. Assuming these bonds are dilutive, 20X3 diluted EPS for Rory is closest to:
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The category of items on the balance sheet that typically offers an analyst the best information on a non-financial firm's investing activities is:
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A firm issues a 4-year semiannual-pay bond with a face value of $10 million and a coupon rate of 10%. The market interest rate is 11% when the bond is issued. The balance sheet liability at the end of the first semiannual period is closest to:
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The presentation format of balance sheet data that standardizes the first-year values to 1.0 and presents subsequent years' amounts relative to 1.0 is a (n):
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Debt covenants to protect bondholders are least likely to:
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At the beginning of the year, Breidel Company changes its inventory accounting method from first in first out to average cost. Assuming an environment of increasing prices, how will this accounting change affect Breidel's forecasts of its net cash position?
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A strong corporate code of ethics is most likely to permit:
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The greatest amount of detailed capital budgeting analysis is typically required when deciding whether to:
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When using the CAPM to estimate the cost of common equity for a company in a developing country, an analyst should most appropr iately:
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The type of short-term financing for which the financing cost is most closely tied to the creditworthiness of a firm's customers is:
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Smith Company's earnings per share are more sensitive to changes in operating income than are those of Jones Company. This implies that Smith Company has a higher degree of:
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If flotation costs are treated correctly in calculating the net present value of a project that will begin in the current period, the flotation costs are most likely:
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In a net present value (NPV) profile, the internal rate of return is represented as the:
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Thompson Products has seen its marginal tax rate increase from 28% to 34% over the last two years and believes the change is permanent. The effects of this change on Thompson's current WACC and on its financial leverage over time are most likely a (n):
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The payment of a stock dividend will most likely decrease:
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In the market model, beta measures the sensitivity of an asset's rate of return to the market's:
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A portfolio is invested 30% in Asset A with the remainder invested in Asset B. Asset A has an expected return of 6% and variance of returns of 0.031, while Asset B has an expected return of 7% and variance of returns of 0.045. The covariance between the returns of the two assets is 0.03735. The standard deviation of returns for the portfolio is closest to:
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Open-end mutual funds differ from closed-end funds in that:
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An analyst determines that four stocks have the following characteristics:
If the risk-free rate is 4% and the expected return on the market is 10%, which of the following statements is least accurate?
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According to the CAPM, a rational, risk-averse investor would be least likely to choose as his optimal portfolio:
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The risk-free rate is 5% and the expected market risk premium is 10%. A portfolio manager is projecting a return of 20% on a portfolio with a beta of 1.5. After adjusting for its systematic risk, this portfolio is expected to:
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An analyst determines that a company has a return on equity of 16% and pays 40% of its earnings in dividends. If the firm recently paid a $1.50 dividend and the stock is selling for $40, what is the required rate of return on the stock if it is priced according to the dividend discount model?
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An investor buys a stock for $50. The initial margin requirement is 50%, and the maintenance margin requirement is 25%. The price below which the investor would receive a margin call would be:
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A securities market exhibits operational efficiency if it offers:
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A stock index consists of two stocks:
·Company A has 50 shares outstanding valued at $2 each.
·Company B has 10 shares outstanding valued at $10 each.
·The price-weighted index is 6, and the value-weighted index is 100.
If the price of Company A's stock increases to $4 per share, and Company B's stock splits two-for-one and is priced at $5, the value of the price-weighted index and the value-weighted index are:
Price-weighted Value-weighted
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Pam Robers, CFA, is performing a valuation analysis on the common stock of Allstare Inc. The stock's beta is 1.1, the risk-free rate is 5%, and the market risk premium is expected to be 8%. Allstare's ROE is expected to be constant at 18%, and its dividend payout ratio has been fairly constant over time at 40%. The forward-earnings multiplier that Robers should use to estimate the current value of the shares is closest to:
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Other things equal, which of the following would be most likely to increase a firm's return on shareholders' equity?
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Over the past few years, the companies in an industry have experienced positive but decreasing profitability and growth rates. The companies have begun to compete intensely with each other and customers switch frequently among brands. This industry's life-cycle stage is most accurately described as:
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An analyst gathered the following data about a company:
·The historical earnings retention rate of 40% is projected to
·continue into the future.
·The sustainable ROE is 12%.
·The stock's beta is 1.2.
·The nominal risk-free rate is 6%.
·The expected market return is 11%.
If the analyst believes next year's earnings will be $4 per share, what value should be placed on this stock?
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Which of the following classifications of firms is least likely to comprise cyclical firms?
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The assertion that investors, analysts, and portfolio managers exhibit psychological tendencies that cause them to make systematic errors is most consistent with:
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An investor purchases 1,000 shares of each of the stocks in a price-weighted index at their closing prices (ignore transactions costs). On a total return basis, if the index stocks remain the same, this portfolio will:
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Among valuation models, the difficulty of estimating a required rate of return is most likely to be a disadvantage of using a (n):
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Which of the following statements about the risks associated with investing in bonds is most accurate?
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The type of credit risk that is most directly reflected in a bond's rating is:
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What effects will an increase in yield volatility have on the values of a putable bond and a callable bond?
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Which of the following statements about debt securities is least accurate?
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An inverse floating-rate bond:
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Portfolio duration most accurately approximates the sensitivity of the value of a bond portfolio to:
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A firm is said to have a top-heavy capital structure if a high percentage of its total capital is:
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An 8%, semiannual pay, option-free corporate bond that is selling at par has ten years to maturity. What is the effective duration of the bond based on a 75 basis point change (up or down) in rates?
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The current 4-year spot rate is 4% and the current 5-year spot rate is 5.5%. What is the 1-year forward rate in four years?
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An economic expansion has caused Treasury yields to increase and absolute credit spreads to narrow. Which of the following is most likely accurate?
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The face value of a $1,000,000 T-bill with 78 days to maturity is priced at $987,845. What is the bank discount yield (annualized) quote for the T-bill?
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A decrease in mortgage interest rates will most likely have what effects on the prices of interest-only stripped mortgage-backed securities and principal-only stripped mortgage-backed securities?
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For which of the following securities is estimating the future cash flows least difficult?
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Which of the following yields least likely represents a spot rate?
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An investor writes a covered call with a strike price of $44 on a stock selling at $40 for a $3 premium. The range of possible payoffs to the writer of this covered call on the combined position is:
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The payoff diagram of portfolio insurance (owning a stock and a put) has the same shape as the payoff diagram for:
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Which of the following statements about interest rate swaps is most accurate?
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A European call and a European put on the same underlying asset each have an exercise price of $45. The two options have six months to expiration and are both selling for $4. The underlying asset is selling for $43 and the rate of return on a 1-year Treasury bill is 6%. According to put-call parity it is most likely that:
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A company wants to hedge against a possible interest rate increase by entering into a forward rate agreement. The following quotes are obtained from a dealer for 30-day FRAs:
Dealer Quotes
60-Day LIBOR = 0.0480
90-Day LIBOR = 0.0500
180-Day LIBOR = 0.0525
The contract covers a notional principal of $50 million. The company hedges its risk of an increase in 60-day LIBOR with an FRA, and 30 days later when the contract expires, the 60-day LIBOR rate is 5%. What does the company collect from, or pay to, the dealer? The company:
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Which of the following statements about futures margins is least accurate?
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Which of the following statements with respect to hedge fund investing is least accurate?
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An investor who wants to hedge against inflation by allocating a portion of a portfolio to alternative investments should most appropriately invest in:
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A leveraged buyout firm that carries out a secondary sale has:
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The notice period for a hedge fund is best described as the period following:
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Adam Schute, CFA, is on a conference call with the CFO of an investment banking client with his phone speaker on and his door open. As a result, salesmen and traders overhear the CFO describing problems with production target dates that have not been publicly disclosed. The salesmen relay this information to clients and the traders reduce their positions in the stock. With respect to the Standard on material nonpublic information, Schute has:
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Peter Wellington references his status as a "CFA candidate" in current client presentation materials. Wellington completed the Level II CFA examination two years ago, regularly reads research materials prepared by CFA Institute, and attends continuing education seminars for employees who are CFA charterholders. Wellington plans to register for the Level III CFA exam next year. Wellington's reference to his status as a CFA candidate in presentation materials:
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Which of the following statements relating to the Global Investment Performance Standards (GIPS?) is least accurate?
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When Ed Michaels, CFA, accepted the compliance officer position at a broker-dealer two years ago, he wrote compliance procedures and made all covered employees aware of the procedures. A report by an external auditor found that on several occasions over the past two years, two different employees traded in recommended securities ahead of trades made in managed client accounts. Michaels fires both employees and recirculates the written compliance procedures that explain clearly which activities are prohibited. Michaels has violated the Standard concerning:
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Ralph Malone, CFA, is an investment adviser at a multinational finance corporation. He has many wealthy individuals among his clients, including a trust account that benefits three of his immediate family members. The research department of Malone's firm issues a "buy" recommendation on a stock-that would be a suitable investment for several client accounts, including the family trust account. Which of the following would be considered a violation of the Standard concerning priority of transactions?
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Patricia Nelson, CFA, was informed by one of her clients that if Nelson could get the performance of the client firm's pension portfolio above that of the Standard & Poor's average by year end, the client would give her a free trip to Singapore to visit the firm's offices. If Nelson agrees to this arrangement, which of the following actions complies with CFA Institute Standards of Professional Conduct? Nelson:
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John Anderson's company is participating in an acquisition. To speed up the process, his manager gives him a report from another company's analyst, also working on the project, and tells Anderson to put it on company letterhead and distribute the report by the end of the day. If Anderson, who is a CFA Institute member, complies, he will violate the Standard on:
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Roger Smith, CFA, has been invited to join a group of analysts in touring the riverboats of River Casino Corp. For the tour, River Casino has arranged chartered flights from casino to casino since commercial flight schedules are not practical for the group's time schedule. River Casino has also arranged to pay for the analysts' lodging for the three nights of the tour. According to CFA Institute Standards of Professional Conduct, Smith:
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Samuel Parkin, a principal of Argor Advisers, is in charge of preparing the firm's performance history in accordance with GIPS. Parkin is careful to include every portfolio managed into a composite for reporting. At the end of each year, he assigns each portfolio to a single composite. He calculates the total return on each portfolio and averages them to calculate the composite performance for the year. With respect to his assignment of portfolios to composites and his calculation of composite total returns, has Parkin violated the requirements of GIPS?
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Susan Smart, CFA, is about to change her "buy" recommendation on RollinsCo to "sell." RoilinsCo had been growing rapidly over the past year, but Smart believes the growth potential is now gone. Smart sells the shares held in her discretionary client accounts and in her own personal account before issuing her report. According to the Standards that concern fair dealing and priority of transactions, Smart violated:
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Matt Jacobs, CFA, is an investment adviser to several university endowment funds. Jacobs previously recommended to a client that he buy shares in Timeco. The shares have underperformed the market this year, and the client has spoken with Jacobs about closing out the position. Jacobs firmly believes Timeco is still a worthy investment and that the client should not sell. Since the stock is thinly traded, Jacobs buys 1,000 Timeco shares in his personal account in order boost the company's share price, with the intent of reversing the trade a few days later. After making the purchase, the share price rises, allowing Jacobs to convince his client to hold on to his Timeco shares. Has Jacobs violated the Standard on market manipulation?
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William Rex, CFA, distributes materials referencing his performance results since he is the only portfolio manager at the firm he has founded. In the presentation, Rex includes five years of investment performance, four of which were with a previous employer. The presentation does not make a distinction between the first four years and the most recent year of performance. Also included in the presentation are simulated results of a stock selection model Rex has recently developed and tested. The fact that the results are simulated is disclosed in the presentation. Has Rex violated any CFA Institute Standards of Professional Conduct?
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Tony Roberts, CFA, is a portfolio manager at Delta Securities. He suspects a colleague, who is not a member or candidate, of ongoing activities that, while not illegal under local law, violate CFA Institute Standards of Professional Conduct. Roberts and the colleague both report to the same managing director at Delta and are both currently being considered for a promotion to senior portfolio manager. According to the CFA Institute Standards of Professional Conduct, Roberts:
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Judy Blush is a CFA candidate and is recommending the purchase of a mutual fund that invests solely in long-term U.S. Treasury bonds (T-bonds) to one of her clients. She states that, "Since the U.S. government guarantees payment of both the bond's principal and interest, risk of loss with this investment is virtually zero." Blush's actions violated:
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Which of the following actions is least likely a violation of the Standard concerning conduct as Members and Candidates in the CFA Program?
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Lilly Marlow is an elderly widow with a moderate risk tolerance who depends on her investment portfolio to meet her living expenses. Marcus Pate, CFA, has been her investment adviser for years and has always managed Marlow's account to her satisfaction. Pate has a lunch meeting with Marlow quarterly and has always used their discussions as a basis for selecting investments for her account, over which he has full discretion to set the investment strategies. Pate often invests in risky derivative strategies to increase the return on Marlow's account. As Marlow's son is reviewing her recent year-end statement, he is shocked to discover that Pate has invested a significant amount of the account's assets in currency derivatives. According to the CFA Institute Standards, Pate is:
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Jarrett Rogers, CFA, recommends investment advisers to high net worth individuals. Investment advisers pay Rogers a portion of their investment management fees as compensation for client referrals. When a client inquires with Rogers about his criteria for recommending managers, Rogers indicates that managers are selected based only on historical investment performance versus a universe of comparable peer investment managers, but he does not mention the compensation paid by the investment advisers. Rogers has most likely violated the Standard concerning:
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Byron Bell, CFA, is an investment manager for Sally Fillmore, president of the local branch of First Bank. Fillmore, in a conversation with Bell's trading assistant, mentions that she is considering moving her account to another investment manager and confides that she has been diagnosed with the early signs of Alzheimer's disease. The trading assistant relays the conversation to Bell. According to the CFA Institute Code and Standards, the trading assistant is:
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A client is celebrating his 50th birthday today and wants to start saving for his anticipated retirement at age 65. He wants to be able to withdraw $20,000 from his savings account on his 66th birthday and each year for 19 more years after that. After extensive research, the client determines that he can invest his money in an account that offers 5% interest per year with quarterly compounding. He wants to make equal annual payments on each birthday into the account--the first payment on his 51st birthday and the last on his 65th birthday.
In addition, the client's employer will contribute $2,000 to the account each year (beginning on the client's 51st birthday) as part of the company's profit-sharing plan (a total of 15 contributions). The amount the client must deposit personally into the account each year on his birthday to enable him to make the desired withdrawals at retirement is closest to:
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A company reports its past six years' earnings growth at 10%, 14%, 12%, 10%, -10%, and 12%. The company's average compound annual growth rate of earnings is closest to:
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The following table summarizes the results of a poll (hypothetically) taken of CFA charterholders and CFA candidates regarding the importance of a continuing education requirement after the CFA designation is obtained:
Given the information that a member of the group is in favor of a continuing education requirement, what is the probability that she is a CFA candidate?
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Stephen Kroller, CFA, analyzes international equity funds. Kroller constructs a sample of international equity mutual funds that have at least a 10-year performance history. Based on the returns of the funds in his sample, Kroller concludes that international equity funds outperformed their comparable U.S. stock indexes over the 10-year period. Kroller's sample and test results are most likely subject to:
-
Which of the following statements about common probability distributions is least accurate?
-
For a binomial random variable with a 40% probability of success on each trial, the expected number of successes in 12 trials is closest to:
-
Which of the following statements about the univariate, multivariate, and standard normal distributions is least accurate?
-
An investor is considering investing in one of the three following portfolios:
If the investor's minimum acceptable return is 5%, the optimal portfolio using Roy's safety-first criterion is:
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An analyst is testing the hypothesis that the variance of monthly returns for Index L equals the variance of monthly returns for Index M based on samples of 50 monthly observations. The sample variance of Index L returns is 0.085, whereas the sample variance of Index M returns is 0.084. Assuming the samples are independent and the returns are normally distributed, which of the following represents the most appropriate test statistic?
-
If the probability of event J multiplied by the probability of event K is not equal to the joint probability of events J and K, then events J and K are most likely:
-
Alan Barnes, CFA, is interested in the expected quarterly return on FTSE 100 stock index. He has data for the last five years and calculates the average return on the index over the last 20 quarters. This average return:
-
Which of the following statements regarding the significance level of a hypothesis test is most accurate?
-
A researcher needs to choose a probability distribution for the price of an asset that is quite volatile in order to simulate returns outcomes. She has a program that will generate random variables from any of a variety of distributions. The most appropriate distribution for her to select to generate the asset price distribution is a:
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An investor is interested in the following piece of property:
·The property will cost $200,000 at time zero.
·It will provide cash flows of $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, and $80,000 in year 4.
·A $20,000 investment will be required in year 5 as the property will have some environmental contamination and will have to be restored to its original condition.
What is the NPV of the project if the investor's required rate of return is 10%?
-
If investors' expected future incomes increase and the demand for financial capital increases, other things equal:
-
Assume that the required reserve ratio is 20%, and banks currently have no excess reserves. If the Federal Reserve then buys $100 million of Treasury bills from the banks, the money supply could potentially increase by:
-
If a minimum wage is set above the equilibrium wage in the labor market. what is the most likely effect?
-
The country of Hokah uses 30 units of labor to produce a unit of cheese and 35 units of labor to produce a unit of leather. The country of Ymer uses 25 units of labor to produce a unit of cheese and 20 units of labor to produce a unit of leather. Which of the following statements is most accurate?
-
As output quantities expand in an industry with a downward-sloping long-run industry supply curve, what is the most likely long-run effect on the equilibrium selling price per unit of the industry's output?
-
If the government regulates a natural monopoly and enforces an average cost pricing, what are the effects on output quantity and price compared to an unregulated natural monopoly?
-
Assume that one year ago, the exchange rate between the Japanese yen and the euro was 100 JPY/EUR, and the exchange rate between the Japanese yen and the U.S. dollar was 80 JPY/USD. Current exchange rates are 104.2 JPY/EUR and 76.6 JPY/USD. Which of the following statements is most accurate?
-
Oligopolists have an incentive to cheat on collusive agreements in order to:
-
An increase in the supply of cars is most likely to be caused by a (n):
-
With respect to the IS-LM model, in an LM curve the real interest rate is:
-
An individual sees her income rise from $80,000 to $88,000, and along with it, her consumption of Good X has decreased from eight dozen packages per year to six dozen packages per year. Good X should be classified as a(n):
-
The Keynesian view suggests that the government can reduce aggregate demand by using:
-
Which of the following is least likely to be considered a barrier to developing one universally recognized set of reporting standards?
-
Which of the following items affects owners' equity but is not included as a component of net income?
-
A company's financial statement data for the most recent year include the following:
·Net income $100
·Depreciation expense 25
·Purchase of machine 50
·Sale of company trucks 30
·Sale of common stock 45
·Decrease in accounts receivable 10
·Increase in inventory 20
·Issuance of bonds 25
·Increase in accounts payable 15
·Increase in wages payable 10
Based only on these items, cash flow from financing activities is closest to:
-
A firm that rents DVDs to customers capitalizes the cost of newly released DVDs that it purchases and depreciates them over three years to a value of zero. Based on the underlying economics of the DVD rental business, the most appropriate method of depreciation for the firm to use on its financial statements is:
-
The item "noncontrolling interest" included as a component of equity represents the portion of a subsidiary the parent company:
-
An analyst gathered the following information about a company:
·Cash flow from operations $800
·Purchase of plant and equipment 40
·Sale of land 30
·Interest expense 80
·Depreciation and amortization 100
·The company has a tax rate of 35% and prepares its financial statements under U.S. GAAP.
The company's free cash flow to the firm (FCFF) is closest to:
-
For which of the following balance sheet items is a change in market value most likely to affect net income?
-
IFRS and U.S. GAAP are most similar in their requirements for:
-
A company using LIFO reports the following:
·Cost of goods sold was $27,000.
·Beginning inventory was $6,500, and ending inventory was $6,200.
·The beginning LIFO reserve was $1,200.
·The ending LIFO reserve was $1,400.
The best estimate of the company's cost of goods sold on a FIFO basis would be:
-
Which of the following items is best described as a listing of all the journal entries in order of their dates?
-
An analyst gathered the following data about a company:
·1,000,000 shares of common are outstanding at the beginning of the year.
·10, 000 6% convertible bonds (conversion ratio is 20 to 1) were issued at par June 30 of this year.
·The company has 100,000 warrants outstanding all year with an exercise price of $25 per share.
·The average stock price for the period is $20, and the ending stock price is $30.
If the convertible bonds are considered dilutive, the number of shares of common stock that the analyst should use to calculate diluted earnings per share is:
-
During periods of rising prices:
-
Which of the following statements about calculating earnings per share (EPS) in simple versus complex capital structures is least accurate?
-
In the period when a firm makes an expenditure, capitalizing the expenditure instead of recognizing it as an expense will result in higher:
-
Which of the following ratios is a component of the original (three-part) DuPont equation?
-
Harding Corp. has a permanently impaired asset. The difference between its carrying value and the present value of its expected cash flows should be written down immediately and:
-
If market interest rates have changed materially since a firm issued a bond, and the firm uses the effective interest rate method, how is a change in the market value of the firm's debt most likely to be reported in the firm's financial statements?
-
Which of the following statements regarding deferred taxes is least accurate?
-
A firm that reports its lease of a conveyer system as an operating lease must disclose:
-
Meyer Company increases the promised payments for all employees in its defined benefit pension plan. Under which financial reporting standards would Meyer recognize past service costs in its income statement for the period?
-
Jordan Loney, CFA, issues a "sell" recommendation on Sullivan Company because she suspects accounting fraud. Loney writes, "Sullivan has an unstable and complex organizational structure with unclear lines of authority. Rapid turnover of key employees in its information systems and accounting units have made Sullivan's internal monitoring controls ineffective." Which condition of the "fraud triangle" has Loney detected at Sullivan?
-
Of the following methods of examining the uncertainty of financial outcomes around point estimates, which answers hypothetical questions about the effect of changes in a single variable and which uses assumed probability distributions for key variables?
Hypothetical Probability
questions distributions
-
Information about a company's financial position at a point in time is most likely found in the:
-
A dealer of large earth movers that leases the machinery to its customers is most likely to treat the leases as:
-
Business risk is best described as resulting from the combined effects of a firm's:
-
An analyst gathered the following information about a capital budgeting project:
·The proposed project cost $10,000.
·The project is expected to increase pretax net income and cash flow by $3,000 in each of the next eight years.
·The company has 50% of its capital in equity at a cost of 12%.
·The pretax cost of debt capital is 6%.
·The company's tax rate is 33%.
The project's net present value is closest to:
-
To protect shareholders' long-term interests, the most appropriate characteristic for a board of directors is that:
-
The amount of a company's optimal capital budget is most accurately determined by the point on the company's investment opportunity schedule:
-
A company is most likely faced with a drag on liquidity if its:
-
A firm with earnings per share of $2 decides to repurchase a portion of its shares at their market price of $25. The firm's after-tax cost of debt is 6% and the firm earns a 2% after-tax yield on its excess cash. When the firm repurchases shares, its earnings per share will:
-
Faye Harlan, CFA, is estimating the cost of common equity for Cyrene Corporation. She prepares the following data for Cyrene:
·Price per share = $50.
·Expected dividend per share = $3.
·Expected retention ratio = 30%.
·Expected return on equity = 20%.
·Beta = 0.89.
·Yield to maturity on outstanding debt = 10%.
·The expected market rate of return is 12% and the risk-free rate is 3%.
Based on these data, Harlan determines that Cyrene's cost of common equity is 14%. Harlan most likely arrived at this estimate by using the:
-
Quixote Co. and Sisyphus Co., two similar-sized competitors, have had stable operating cycles of 180 days and cash conversion cycles of 140 days over the past several years. Sisyphus' operating and cash conversion cycles remained at these levels in the most recent year, but Quixote's cash conversion cycle contracted to 120 days while its operating cycle remained at 180 days. Relative to Sisyphus, Quixote has most likely begun:
-
A company prepares a chart with the net present value (NPV) profiles for two mutually exclusive projects with equal lives of five years. Project Jones and Project Smith have the same initial cash outflow and total undiscounted cash inflows, but 75% of the cash inflows for Project Jones occur in years 1 and 2, while 75% of the cash inflows for Project Smith occur in years 4 and 5. Which of the following statements is most accurate regarding these projects?
-
Which of the following is a sign of a well-qualified board member?
-
The investment needs of property and casualty insurers are characterized by a:
-
Using historical index returns for an equities market over a 20-year period, an analyst has calculated the average annual return as 5.60% and the holding period return as 170%. The compound annual index return over the period is closest to:
-
Which portion of an investment policy statement is most likely to state any restriction on portfolio leverage?
-
Davis Samuel, CFA, is meeting with one of his portfolio management clients, Joseph Pope, to discuss Pope's investment constraints. Samuel has established that:
·Pope plans to retire from his job as a bond salesman in 17 years, after which this portfolio will be his primary source of income.
·Pope has sufficient cash available that he will not need this portfolio to generate cash outflows until he retires.
·Pope, as a registered securities representative, is required to have Samuel send a copy of his account statements to the compliance officer at Pope's employer.
·Pope opposes certain policies of the government of Lower Pannonia and does not wish to own any securities of companies that do business with its regime.
To complete his assessment of Pope's investment constraints, Samuel still needs to inquire about Pope's:
-
When a risk-free asset is combined with a portfolio of risky assets, which of the following is least accurate?
-
Ira stock's beta is equal to 1.2, its standard deviation of returns is 28%, and the standard deviation of the returns on the market portfolio is 14%, the covariance of the stock's returns with the returns on the market portfolio is closest to:
-
An analyst classifies Mettler, Inc., an operator of retail grocery stores, in the same industry group as Powell Corporation, a manufacturer of industrial machinery. This analyst's classification system is most likely based on:
-
To ensure the continuity of a value-weighted index when one of the stocks in the index is split:
-
Robert Higgins is estimating the price-earnings (P/E) ratio that will be appropriate for an index at the end of next year. He has estimated that:
·Expected annual dividends will increase by 10% compared to this year.
·Expected earnings per share will increase by 10% compared to this year.
·The required rate of return will rise from 8% to 11%.
Compared to the current P/E, the end-of-the-year P/E will be:
-
An analyst gathered the following data about a stock:
·The stock paid a $1 dividend last year.
·Next year's dividend is projected to be 10% higher.
·The stock is projected to sell for $25 at the end of the year.
·The risk-free rate of interest is 8%.
·The expected return on the market is 13%.
·The stock's beta is 1.2.
The value of the stock today is closest to:
-
A contract that requires one party to pay $100,000 each quarter to another company that will make a variable quarterly payment based on the market value of an equities portfolio is referred to as:
-
Visser, Inc. is an unprofitable fishing enterprise. Visser rents most of its boats and equipment but owns valuable transferable fishing quotas. If a competitor is interested in acquiring Visser, the most appropriate equity valuation model to use is a (n):
-
A firm has a constant growth rate of 7% and just paid a dividend of $6.25. If the required rate of return is 12%, what will the stock sell for two years from now based on the dividend discount model?
-
In a transaction referred to as a management buyout (MBO):
-
Archer Products is in an industry that has experienced low levels of price competition but recently excess capacity has led to aggressive price cutting. An analyst would be least likely to describe Archer's industry as:
-
Assume the Wansch Corporation is expected to pay a dividend of $2.25 per share this year. Sales and profit for Wansch are forecasted to grow at a rate of 20% for two years after that, then grow at 5% per year forever. Dividend and sales growth are expected to be equal. If Wansch's shareholders require a 15% return, the per-share value of Wansch's common stock based on the dividend discount model is closest to:
-
Under which of the following conditions are market values of securities most likely to be persistently greater than their intrinsic values?
-
Moore Company stock is currently trading at $40 per share. An investor attempting to protect against losses of more than 10% on a short position in Moore should place a:
-
Compared to the underlying MBS, a collateralized mortgage obligation (CMO):
-
An analyst collects the following spot rates, stated as annual BEYs:
·6-month spot rate = 6%.
·12-month spot rate = 6.5%.
·18-month spot rate = 7%.
·24-month spot rate = 7.5%.
Given only this information, the price of a 2-year, semiannual-pay, 10% coupon bond with a face value of $1,000 is closest to:
-
A bond has an effective duration of 7.5. If the bond yield changes by 100 basis points, the price of the bond will change by:
-
Which of the following best describes the motivation for a corporation to issue an asset-backed security? Securitization of specific assets by a corporation enables the corporation to:
-
An analyst is considering two bonds: Bond A yields 7.5%, and Bond B yields 7.0%. Using Bond B as the reference bond, the yield ratio for Bond A is closest to:
-
In contrast to the full valuation approach to measuring interest rate risk, the duration/convexity approach:
-
An analyst collects the following information regarding spot rates of interest:
·1-year rate = 4%.
·2-year rate = 5%.
·3-year rate = 6%.
·4-year rate = 7%.
Utilizing the pure expectations theory of the term structure of interest rates, the expected annualized 2-year interest rate two years from today is closest to:
-
A credit analyst determines the following selected financial ratios for three firms in an industry after making all appropriate adjustments:
In evaluating the creditworthiness of these firms, the analyst should conclude that:
-
An analyst is comparing two bonds and has collected the following data:
·Bond P: Nominal spread of 125 basis points, zero-volatility spread of 125 basis points, and option-adjusted spread of 65 basis points.
·Bond Q: Nominal spread of 95 basis points, zero-volatility spread of 95 basis points, and option-adjusted spread of 95 basis points.
Each bond is similar in all respects except that Bond P is a mortgage passthrough security and Bond Q is a noncallable corporate bond. Based only on this information, which of the following statements is most accurate?
-
If a corporate bond is non-refundable, the issuer:
-
CureAll General Hospital has been forced to file for bankruptcy protection. The company managing the hospital has been allowed to reorganize under the name United Hospital of Hope. The courts have specified that a new indenture should be written to accompany a planned new bond issue. The issue would have ten years to maturity and carry a 10% coupon that would be paid annually. The new agreement would relieve the company of the obligation to make interest payments during the first five years after the bond is issued. For the remaining five years, regular interest payments would resume. Finally, at maturity, the principal ($1,000) plus the interest that was not paid during the first five years would be paid. However, no additional interest would be payable on the deferred interest. If the bond's YTM is 10%, its value is closest to:
-
Which of the following statements regarding the term structure of interest rates is least accurate?
-
A floating-rate security is most likely to trade at a discount to its par value because the:
-
The price value of a basis point (PVBP) for a bond is most accurately described as:
-
Which of the following statements about interest rate swaps and currency swaps is least accurate?
-
A borrower with a variable-rate loan who wants to protect herself from an increase in interest rates without sacrificing potential gains from an interest rate decrease should:
-
An investor has a call option on a stock that is currently selling for $35. The call option is in the money by $3. The call option's strike price is:
-
An investor is short a portfolio of stocks that has volatility and return characteristics similar to that of the S&P 500. Which of the following strategies would best hedge the market risk of the short portfolio position?
-
A put on a stock with a strike price of $50 is priced at $4 per share, while a call with a strike price of $50 is priced at $6. What is the maximum per share loss to the writer of the put?
-
A major bank has entered into a 4-year, annual-pay, 6% plain-vanilla interest rate swap with a notional principal value of $10,000,000 as the fixed-rate payer. The following spot and forward rates are observed and expected:
·l-year LIBOR today = 5%.
·Expected l-year LIBOR in one year = 6%.
·Expected l-year LIBOR in two years = 7%.
Based solely on this information, the expected net payment in 24 months (for the fixed-rate payer) will be:
-
Supplying capital to companies that are just moving into operation, but do not as yet have a product or service available to sell, is a description that best relates to which of the following stages of venture capital investing?
-
An equity hedge fund that uses technical analysis techniques to identify undervalued shares to buy and overvalued shares to sell short is best described as pursuing a(n):
-
A hedge fund that requires incentive fees to be calculated only on the portion of returns above a benchmark return is said to have a:
-
Compared to investing in commodities, investing in farmland is most likely to provide which of the following benefits?
-
Li Feng, CFA, manages accounts for high net worth clients including his own family's account. He has no beneficial ownership in his family's account. Because Li is concerned about the appearance of improper behavior in managing his family's account, when his firm purchases a block of securities, Li allocates to his family's account only those shares that remain after his other client accounts have their orders filled. The fee for managing his family's account is based on his firm's normal fee structure. According to the Standards of Practice Handbook, Li's best course of action with regard to management of his family's account would be to:
-
According to CFA Institute Standards of Professional Conduct, members must preserve the confidentiality of information received from a client unless:
-
According to the CFA Institute Standards of Professional Conduct, beneficial security ownership that might impair one's professional judgment must be disclosed to all of the following except:
-
According to the CFA Institute Standards of Practice handbook, insider trading is the least likely to be prevented by establishing:
-
Wu Yang, CFA, manages individual portfolios for Far East Trust Company. Hu Haiyun, a client, proposes to Wu Yang, “Any year my portfolio achieves at least a 20 percent return before tax, you and your family can fly to Sanya in Hainan Province in China at my expense and use my condominium during the Spring Festival in February.” While Wu Yang does not inform his employer of the arrangement, he watches Hu Haiyun's portfolio performance intensively throughout the year and makes sure her account gets top priority for any partially executed block trade order. Hu Haiyun's portfolio return exceeds the 20 percent target for the year, and Wu Yang vacations in Sanya the following February as Hu Haiyun's guest. According to the Standards of Practice Handbook, Wu Yang is least likely to have violated the CFA Institute Standards relating to:
-
Tom Wu, CFA, is the owner and sole employee of two companies, a public relations firm and a financial research firm. The public relations firm entered into a contract with Merrylin Enterprises to provide public relations services. According to the contract, Tom Wu received 40,000 shares of Merrylin stock in payment for his services. Over the next 10 days, the public relations firm issued several press releases that discussed Merrylin's excellent growth prospects. Tom Wu, through his financial research firm, also published a research report recommending Mallory stock as a buy. According to the Standards of Practice Handbook, was Tom Wu required to disclose his ownership of Merrylin stock in the:
Press release? Research report?
-
Wang Gang, CFA, is a bank industry research analyst for a large broker and dealer firm. He is attending a company presentation for Mellon Bank with a small group of analysts from other companies. A company official at Mellon Bank comments to the group during the meeting, “Yesterday, management made the decision to implement a large share repurchase plan which we plan to announce in a press release early next week.” According to the Standards of Practice Handbook, Wang Gang:
-
ZhongYi Xie, CFA, a portfolio manager for PIA Investments, plans to manage the portfolios of several family members in exchange for a percentage of each portfolio's profits. As his family members have requested that ZhongYi Xie provide the service outside his employment with PIA, he notifies his employer in writing of his prospective outside employment. Two weeks later, ZhongYi Xie has received no response from his employer and begins managing the family members' portfolios. By managing these portfolios, did ZhongYi Xie violate any CFA Institute Standards of Professional Conduct?
-
John Harris has passed Level I of the CFA exam. Although he registered for the Level II exam, he failed to sit for the exam due to a business emergency. John plans to re-register for the exam. According to the Code and Standards, in communications with prospective clients, John is allowed to:
-
William Wong, CFA, is an equity analyst with Hayswick Securities. Based on his fundamental analysis, Wong concludes that the stock of a company he follows, Nolvec Inc., is substantially undervalued and will experience a large price increase. He delays revising his recommendation on the stock from “hold” to “buy” to allow his brother to buy shares at a lower price. According to the Standards of Practice Handbook, William Wong is least likely to violate the professional Conduct that relates to:
-
Win Jang is his firm's research director, and one of his regular duties is to distribute a monthly “Top 10 Buys and Sells” list drawn from companies listed in Hong Kong. One month, Jang reads an academic research paper detailing a screening algorithm (based on companies' earnings, depreciation, interest expense, and current stock price) that was used to generate abnormal profits in the German stock market. Jang applies the algorithm, without making any changes, to Hong Kong stocks, and uses the results to form the month's buy and sell list. Jang has:
-
According to the Standards of Practice Handbook, members must make a reasonable inquiry into a client's financial situation, and must do all of the following except:
-
Which of the following is not a reason for the creation of the Global Investment Performance Standards (GIPS standards):
-
Zhang Zhong, CFA, is a portfolio manager in a large investment management company. He discovers that Chen Qin, CFA, one of the assistant portfolio managers he supervises, may have violated the local security law. According to the Standards of Practice Handbook, Zhang Zhong's initial course of action must be to:
-
The eight major provisions of the Global Investment Performance Standards (GIPS) at least include:
-
Country X requires firms to present performance information using only realized returns, while the GIPS standards require calculations to be based on both realized and unrealized returns. A firm located in country X:
-
Which of the following statements regarding the verification of a company's claim to be in compliance with the GIPS standards is not true?
-
Anna Cheung, CFA, the marketing director at First Financials, plans to be a leading investment advisor by marketing an exclusive investment advice letter to wealthy individuals relying on the firm's reputations. Anna thinks that the major obstacle to clients' plan is the complexity of First Financials' investment screening system, a combination of technical trading rules and portfolio optimization techniques designed to minimize risk. To simplify the newsletter, Anna decides to include only each week's top ten buy and sell recommendations and exclude the information associated with the methods used to select securities. According to the Standards of Practice Handbook, would Anna's actions with respect to the advice letter violate any CFA Institute Standards of Professional Conduct?
-
Compared to a univariate normal distribution, the distinguishing feature of a multivariate normal distribution is the need to specify a parameter that is related to:
-
An analyst gathered the following information about a stock index:
Mean net income for all companies in the index $3.2 million
Standard deviation of net income for all companies in the index $4.8 million
If the analyst takes a sample of 36 companies from the index, the standard error of the sample mean is closest to:
-
You are analyzing a sample of money manager's returns from the population of 900. According to Chebyshev's inequality, what is the minimum number of managers would you expect to lie within 2.5 standard deviations of the mean return?
-
Which of the following changes in sample size and degrees of freedom, respectively, is most likely to result in an increase in the width of the confidence interval for the population mean?
Sample size Degrees of freedom
-
On 1 January, Helen's portfolio is valued at $1,000,000. Helen wants to make an $100,000 payment to buy a house on 31 December of the same year, but does not want the year-end portfolio value to fall below $1,000,000. The expected annual return on the investor's existing portfolio is 15 percent with an expected standards deviation of 20 percent. The risk-free rate is 8%. The safety-first ratio for the portfolio is closest to:
-
An investor's portfolio has a mean return of 15 percent and a coefficient of variation of
1.8. If the risk-free rate of return is 15 percent, the portfolio's Sharpe ratio is closet to:
-
The bond-equivalent yield for a semi-annual pay bond is most likely:
-
If a normal distribution has a mean of 10 and a variance of 40, a standardized value of 0.5 corresponds to an observation value that is closest to:
-
The least accurate statement about measures of dispersion for a distribution is that the:
-
An analyst collects the following set of ten returns from the past.
The geometric mean return (%) is closest to:
-
A portfolio earned the following holding period returns during 2006:
The portfolio's time-weighted rate of return for 2006 was closest to:
-
Which of the following charts illustrates the opening price for each trading period?
-
An analysis determined that approximately 99 percent of the observations of daily sales for a company were within the interval from $250,900 to $580,000 and that daily sales for the company were normally distributed. The mean daily sales and standard deviation of daily sales, respectively, for the company were closest to:
Mean daily sales Standard deviation of daily sales
-
The joint probability of returns, for securities A and B, are as follows:
The covariance of returns of A and B is:
-
Does the quantity theory of money assume that in the long run:
Potential GDP is influenced the price level is influenced
by the quantity of money? by the quantity of money?
-
Which of the following condition is least likely to be the obstacle to the efficient allocation of productive resources:
-
Which of the following condition is least likely to be the reason that a black market is generally inefficient:
-
Which of the following describes the difference between perfect competition and monopolistic competition? Firms in monopolistic competition:
-
Generally speaking, when the Herfindahl-Hirschman Index (HHI) is calculated by summing the squared percentage market shares, how many largest firms' data is used in a industry, supposing there are a large number of firms in the industry:
-
If accurately calculated, will the amount of accounting profit for a firm generally:
Be below that firm's economic consider both that firm's
profit for the same time Defied? explicit and implicit costs?
-
The demand for a given resource will most likely decrease if the prices of its substitute resources and complementary resources, respectively:
Prices of substitute resources Price of complementary resources
-
With respect to the different views about short-term fluctuations in the economy, what is the primary driver of aggregate demand according to the:
Keynesian view? Classical view?
-
Which of the following types of unemployment is most likely to be associated with an economy in which many workers have been made obsolete by changing technology?
-
The free-rider problem, an obstacle to efficiency, is most likely associated with:
-
A company has determined that the quantity of that company's product demanded will increase by 5 percent when price is reduced by 10 percent. That company's elasticity demand is best described as:
-
According to the Phillips curve approach, when inflation is less than expected, the most likely initial effect is that:
-
An analyst gathered the following information from Leneor Corporation's 2009 financial statements published:
After reviewing the footnotes to the financial statements of Leneor Corporation, the analyst concludes that the present value of operating lease payments for 2010 is $8 million and the present value of operating lease payments for all years after 2010 totals $80 million. Other companies in this industry use capitalized lease obligations dominantly. So the analyst needs to adjust the financial ratio of Leneor Corporation. Leneor Corporation's adjusted 2009 total debt-to-total capital and total asset turnover ratios, respectively, that best compare the company to the industry are:
Total debt-to-total capital ratio Total asset turnover ratio
-
According to U.S. GAAP and IFRS, respectively, is a company required to classify interest paid as cash flow from operating activities in the cash flow statement?
-
An analyst gathered the following information about an asset sold by a company at the end of the year:
·Original cost = $80,000
·Accumulated depreciation at date of sale = $45,000
·Cash proceeds from the sale = $35,000
Which of the following best describes the effect of the sale on the company's financial statements for that year? The sale will increase:
-
Which inventory costing method approximates most closely the current prices for each of the following?
Cost of Goods Sold Ending Inventory
-
A company uses the FIFO method of accounting for its inventory. It is contemplating switching to the LIFO method and would like to know the impact of the change on its net income. The following amounts were obtained from its most recent financial statements:
Inventory 2008 2009
FIFO $300,000 $350,000
LIFO $240,000 $275,000
Based solely on the above information, what is the impact of a switch to the LIFO method on 2009 net income assuming a tax rate of 35%?
-
A lessee company entered into a new capital lease agreement with a lesson company. The lease payments are $180,000 annually and are due at the end of each year for 6 years. The appropriate discount rate is 12 percent. Depreciation is on a straight-line basis with zero salvage value. The total expense that should be reported on the company's income statement for the first full year of the new capital lease is closest to:
-
In a period of declining prices and stable or increasing inventory quantities, which of the following descriptions on the impact of LIFO and FIFO on financial statements (is) are true?
LIFO FIFO
Ⅰ. Inventory Higher Lower
Ⅱ. Net income Higher Lower
Ⅲ. Cash flow from operations Higher Lower
-
A steel manufacturing company classifies shipping costs charge to customers as revenue and classifies payments that the company makes to shipper as selling, general and administrative expense. All else being equal, the company's treatment of shipping cost is most likely to:
-
In 2009, the average market price of a company's common stock was $60 per share and basic earnings per share was $1.60. With respect to the computation of 2009 diluted earnings per share for that company, use of the treasury stock method would most likely result in incremental shares outstanding related to the company's:
-
L'Eau Ltd. Reported sales of $56,000,000 for the year ended December 31, 2009. Accounts receivable balances were $8,560,000 at January 1, 2009, $9,600,000 at December 31, 2009. The company's cash collection from sales for 2009 is closest to:
-
For a company with increasing capital expenditures, which of the following descriptions on the impact of using the straight line or accelerated depreciation methods on financial statements is (are) true?
Straight-line Accelerated Depreciation
Ⅰ．Net income Higher Lower
Ⅱ．Cash flow from operations Higher Lower
Ⅲ．Return on assets Higher Lower
IV．Asset turnover Higher Lower
-
An Australian company that adopts IFRS, chooses to use the revaluation model for its property, plant and equipment (PPE). At the beginning of this fiscal year ended 01 Feb 2010, the company purchased an equipment priced at AUD28,000. As of 01 Feb 2010, the equipment was determined to have a market value of AUD31,000. Should the company record a profit for the revaluation of the equipment?
-
David Smith, CFA, suspects that a particular company's interest coverage ratio may be overstated compared to that of other companies in the same industry and therefore requires additional adjustment. If the company is a lessee and meanwhile inventory prices and quantities have been decreasing, the accounting methods used for new lease commitments and inventory valuation respectively that are most likely to have overstated the interest coverage ratio are:
New lease commitments Inventory valuation
-
An analyst gathered the following data for three profitable companies operating in the same industry:
Company Deferred Tax Assets Deferred Tax Liabilities
1 $300,000 $400,000
2 $85,000 $50,000
3 $170,000 $115,000
If the applicable income tax rate decreases and nothing else changes, which company will most likely experience the largest decrease in reported equity?
-
During 2009, a company reported the sale of accounts receivable but retained the effective credit risk for the uncollected receivables. That company's 2009 financial statements will most likely overstate:
-
In which of the following cases can deferred tax liabilities be treated as equity?
Ⅰ．A growing firm that is able to consistently generate additional deferred tax liabilities.
Ⅱ．Congress is contemplating an increase in tax rates.
Ⅲ．A firm that is expected to generate future taxable losses.
-
Thomas Laney is a stock analyst and gathered the following information about General Mobile, Inc which he kept watching for long, the ratios are as below:
General Mobile's sales have been constant over time, while industry sales have increased slightly during the same period. From 2007 to 2009, Herndon most likely experienced an increase in the:
-
An analyst gathered the following information about a company ($ millions):
If the company used the FIFO inventory method instead of LIFO, the company's 2009 cost of goods sold ($ millions) would be closest to:
-
An analyst notes that the footnotes to the financial statements for a lessee company indicate that the company leases a substantial portion of the facilities required for efficient operation. The present value of lease payments is $20 million for facilities leased under capital leases and $30 million for facilities leased under operating leases. Other companies in the same industry own their facilities. Before the analyst compares the company's financial ratios with the industry's ratios, the most appropriate adjustments to that company's balance sheet would be to increase:
-
Luo Jue, CFA, is an analyst in a security analysis company. She gathered the following information about a company:
The company's cash conversion cycle is closest to:
-
Which of the following statements best describes the effect of the issuance of long-term debt on the issuing company' s cash flow from financing (CFF) over the life of that debt when market rate of interest is more than the coupon rate of interest at the time of issuance. During the life of the debt, CFO will most likely be:
-
An analyst does research about ratio impact between capital lease and operating lease. All else being equal, compared with a lessee company that enters into a new capital lease, is a lessee company that enters into a new operating lease likely to have a higher probability of violating existing bond covenants related to the:
minimum interest maximum
coverage ratio? debt-to-equity ratio?
-
Which of the following securities would individually be considered dilutive for purposes of calculating diluted earnings per share, assuming that basic earnings per share is $2.20 and the tax rate is 40%?
Ⅰ. Stock options outstanding with an exercise price of $10 when the average market price of stock for the year is greater than $10 but year-end market price is $8.
Ⅱ. 6% Convertible preferred stock with a par value of $100 and convertible into 2.5 shares of common stock.
Ⅲ. 5% Convertible bonds issued at par and each $1,000 bond is convertible into 20 shares of common stock.
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Rodge expects sales in 2010 to grow at the historical compound annual growth of sales from the year 2004 to 2009. For the year 2010, the net profit margin and the number of shares outstanding are expected to remain unchanged from the year 2009. The company's earnings per share (EPS), for the year 2010, would be closest to:
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A company is evaluating the following investment proposals that have the same risk as the company:
Which of the following statements about the proposals is most accurate?
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Zeta Corp. has 17 million shares outstanding, at a price of $22. The company's shares have a beta of 0.9, Zeta also has a $750 million face value, 10-year debt issue outstanding, featuring a coupon rate of 6%. The debt is priced to yield 6%. The risk free rate is 4%, and the expected return on the market is 10%. What is the weighted average cost of capital for Zeta, assuming no taxes?
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A corporation has an issue of preferred stock outstanding. The stock pays an annual dividend of $2.25 and is priced at $38 per share. What is the cost of preferred stock in the company's capital structure, if the corporate tax rate is 35%?
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If two firms have the same revenue and operating risk, which of the following is most likely identical between these two?
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Manchester Manufacturing Industries (MMI) manufactures and sells laser printer cartridges for $85 each. Fixed operating costs are $ 580,000 for up to 40,000 units of output. Fixed interest costs are currently $80,000 per year. Variable costs are $55 per cartridge. The breakeven quantity of unit sales for MMI is closest to:
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A company that sells ice cream is evaluating an expansion of its production facilities to allow the company to also produce frozen yogurt. The expansion project is based on a marketing study that concluded producing frozen yogurt would increase the company's ice cream sales because of an increase in brand awareness. Should an analyst include the cash flows associated with the expected increase in ice cream sales in the calculation of the project's net present value (NPV)?
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The following information is available for a company and the industry in which it competes:
Relative to the industry, the company's operating cycle:
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An analyst gathered the following information about a company that expects to fund its capital budget without issuing any additional shares of common stock:
If no significant size or timing differences exist among the projects and the projects all have the same risk as the company, which project has an internal rate of return that exceeds 10 percent?
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Which of the following is the most appropriate technique for forecasting cash flow for the short term?
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An investment fund owns 9 percent of the outstanding voting shares of a public company. There are several larger voting blocks of shares such that the investment fund is not assured of being able to elect representation on the board of directors. Which type of shareholder voting right would be most beneficial in allowing the investment fund to ensure their interests are represented on the board?
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All of the following are characteristics of a well functioning securities market except:
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An investor buys 200 shares of ABC at the market price of $100 on full margin. The initial margin requirement is 40 percent and the maintenance margin requirement is 30 percent. At what price will the investor get a margin call?
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Which of the following will be reduced by the reconstitution of a security market index?
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The efficient market hypothesis implies that fundamental analysis:
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BIM Technologies, Inc., is a large firm in a competitive industry. The company has above-average investment opportunities and its return on investments has been above the company's required rate of return. In addition, BIM has invested heavily in fixed assets and technology to reduce its production costs. The company has also increased its advertising budget substantially to establish a strong brand image for its products. From the above description, BIM is best characterized as a:
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A cyclical company's size increases hugely in the recent years and has fluctuant earning every year. Which method is least likely to use to calculate this company's earning to formulate P/E ratio?
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Oxford Enterprises Incorporated is determining the cost of debt to use in its weighted average cost of capital. It has recently issued a 10-years, 6 percent semi-annual coupon bond for $864. The bond has a maturity value of $1,000. If the marginal tax rate is 35 percent, the cost of debt they should use in their calculation is close to:
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An analyst gathered the following information about LION Manufacturing Company. LION Manufacturing Company paid a $1.00 dividend this year. Over the next 3 years, dividends and earnings are expected to grow at a rate of 18 percent. After three years, LION Manufacturing Company is expected to grow at a constant rate of 7 percent. If investors require a return of 12 percent on similar companies, which of the following choices is closest to the estimated value of the stock?
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Using the following information, calculate the rate of return on a margin transaction for an investor who purchases the stock and the stock price at which the investor who shorts the stock will receive a margin call.
What of the following choices is closest to the correct answer? The margin transaction return is:
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Assuming past investments are stable and earnings are calculated to allow for maintenance of past earnings power, the firm's expected dividend growth rate can be estimated by its:
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In securities exchange markets, a member who executes stop loss or stop buy orders when the specified price occurs is most likely a:
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An analyst has calculated the following ratios for a firm:
The return on equity for this firm would be closest to:
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Are principal amounts typically exchanged at the beginning of a (n):
Interest rate swap? Currency swap?
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A U.S. bank enters into a plain vanilla currency swap with a notional principal of US$500 million (GBP￡300 million). At each settlement date, the U.S. bank” pays a fixed rate of 4.5 percent on the British pounds received and the British bank pays a variable rate equal to LIBOR on the U.S. dollars received. Given the following information, what payment is made to whom at the end of year 2?
The U.S. bank pays:
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A European stock index call option has a strike price of $1160 and a time to expiration of 0.25 years. Given a risk-free rate of 4%, if the underlying index is trading at $1200 and has a multiplier of 1, then the lower bound for the option price is closest to:
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A put on Stock X with a strike price of $40 is priced at $3.00 per share; while a call with a strike price of $40 is priced at $4.50. What is the maximum loss per share to the writer of the uncovered put and the maximum gain per share to the writer of the uncovered call?
The maximum loss per share The maximum gain per share
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An investor purchases a stock for $40 per share and simultaneously sells a call option on the stock with an exercise price of $42 for a premium of $3/share. Ignoring dividends and transactions cost, what is the maximum profit that the writer of this covered call can earn if the position is held to expiration?
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Do “margin” in the stock market and “margin” in the futures market, respectively, mean that an investor has received a loan that reduces the amount of his own money required to complete the transaction?
“Margin” in the stock market “Margin” in the futures market
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The table below summarizes the yields and corresponding price for a hypothetical 15-year option-free bond that is initially priced to sell at 7% yield:
Using a 10 basis point rate shock, the effective duration for this bond closest to:
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An 8% coupon bond with a par value of $100 matures in 6 years and is selling at $95.51 with a yield of 9%. Exactly one year ago this bond sold at a price of $90.26 with a yield of 10%. The bond pays annual interest. The change in price attributable to the change in maturity is closest to:
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Suppose a treasury inflation protective security (TIPS) is currently traded at its par value of $100,000, and has a 4 percent coupon rate paid semi-annually. If the annual inflation rate is 2.5 percent, what is the coupon payment after six months has passed?
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Which of the following transaction is the most appropriate strategy for a fixed income portfolio manager under the anticipation of an economic expansion?
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A bond portfolio manager owns $5 million par value of a non-callable bond issue. The duration of the bonds is 5.6 and the current market value of the bonds is $5,125,000. If yield decline by 25 basis points, the approximate new price of the bonds after the decline in yield will be closest to:
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Which of the following statements about the effects of interest rate volatility on value of bonds with embedded options is least accurate?
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Using the following information about spot rates, what is the price of a three-year bond with annual coupon payments of 5 percent? One-year rate: 4.78% Two-year rate: 5.56% Three-year rate: 5.98%
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A bond is selling at a premium relative to its par value. Which of the following relationships holds?
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An analyst gathered the following information about spot rates and a coupon bond (all rates are annual) issued by Farraili Corporation:
Using the arbitrage-free approach to valuing bonds, the coupon bond is:
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Generally speaking, all else being equal, an upward-sloping yield curve can be expected when:
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An analyst determines that an 8% option-free bond, maturing in 2015, would experience a 3% change in price if market interest rise by 50 basis points. if market interest rates instead fall by 50 basis points, the bond's price would:
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The six-month Treasury bill has a yield to maturity of 5 percent. The one-year Treasury bill with zero coupon, has a yield to maturity of 6 percent, if a Treasury note with a maturity of 1.5 years and a coupon rate of 6 percent is priced at 97.32, what's the implied spot rate of 1.5 years?
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Which of the following statements is least accurate with respect to the advantages of open-end exchange traded funds (ETFs)? Open-end ETFs:
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An analyst gathered the following information about a rental property:
Using the income approach, the market capitalization rate is closest to:
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Which real estate valuation approach is most likely to require specific information about an investor to estimate the value of a property?
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You need to estimate the market value of an income producing property located in your town. Through research you have found that the property should have net operating income of $900,000, taxes of $135,000, a capitalization rate of 14 percent, and an inflation rate of 3 percent. What is the estimated property value using above information?
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An analyst estimates that an initial investment of $500,000 in a venture capital project will pay $6 million at the end of five years if the project succeeds and that the probability the project survives to the end of the fifth year is 25 percent. The required rate of return for the project is 19 percent. The expected net present value of the venture capital investment is closest to:
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An analyst does research about characteristics of various funds. All other factors being equal, a substantial difference between the market price of a fund and the net asset value of that fund is most likely to occur for a (n):
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Portfolios located to the right of the market portfolio on the capital market line are:
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On the minimum-variance frontier, which of the following portfolios has the lowest standard deviation:
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According to capital asset pricing model (CAPM), if an investor holds a portfolio that lies on the capital market line (CML) to the right of the market portfolio, that investor should expect that his portfolio will:
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Qiang Li is primarily concerned with growing his portfolio using a balance between capital gains and reinvestment of current income. Qian Yun is primarily concerned with achieving an investment return that is no lower than the rate of inflation. Which of the following objective is most appropriate for:
Qiang Li? Qian Yun?
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An analyst gathered the following information about two common stocks:
·Variance of returns for the Libby Company=15.5
·Variance of returns for the Metromedia Company=22.3
·Covariance between returns for the two common stocks is close to: 8.65
The correlation coefficient between returns for the two common stocks is closest to:
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An analyst gathered the following information:
If the covariance of the returns on the stock with the returns on the market portfolio is equal to the variance of the returns on the market portfolio, the analyst's most appropriate conclusion is that the stock is:
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Alen Bishop earned the right to use the CFA designation in September 1968. Alen recently retired from the investment management profession. As he is retired, Alen no longer attends CFA Institute society meetings and has stopped paying his CFA Institute dues. According to the Standards of Practice Handbook, how should Alen refer to his affiliation with the CFA Program?
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A stated objective of the CFA Institute's Global Investment Performance Standards (GIPS) is to:
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During an onsite company visit, Jane Wang, CFA. accidentally overheard the Chief Executive Officer (CEO) of Stargazer, Inc. discussing the company's tender offer to purchase Dynamica Enterprises, a retailer of Stargazer products. According to the CFA Institute Standards of Professional Conduct, Wang most likely cannot use the information because:
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According to the Standards of Practice Handbook, which of the following statements about fair dealing is least accurate? The Standard relating to fair dealing:
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The Standards of Practice Handbook is least likely to require a member of member's firm to disclose which of the following to clients and prospective clients?
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Heidi Krueger, CFA, has discretionary authority over the accounts of Johnson, for whom she manages a portfolio of energy stocks, and Osaki, for whom she manages a diversified portfolio of domestic and international stocks. Krueger always seeks the best price and execution and has disclosed to all of her clients the process she follows to make use of soft dollars and apply them for the benefit of her clients. In the year 2008, Krueger applied soft dollars generated from the Johnson and Osaki accounts to purchase a report on the economic impact of world events, to purchase an analysis of the domestic steel industry, and to purchase a new conference table for her office. Krueger was in compliance with the Code and Standards in the year 2008:
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Gloria Brown, CFA, is the founder and portfolio manager of the Everglades Fund. In its first year the fund generated a return of 35%. Building on the fund's performance, Gloria created new marketing materials that showed the fund's gross 1-year return as well as the 3-, and 5-year returns which he calculated by using back-tested performance information. As the marketing material is used only for presentations to institutional clients, Gloria does not mention the inclusion of back-tested data. According to the Standards of Practice Handbook, did Gloria violate any CFA Institute Standards of Professional Conduct?
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Scott Marsh is a research analyst for a brokerage firm following the computer industry. Joe Perry is Marsh's former college roommate and is the head of technology for Mercury, a large software company. Perry informs Marsh on Tuesday that in two days the company will be making an official announcement that its release of its newest version of its software will be moved up one month, from October 1 to September 1. The announcement will be surprising to the industry and will likely be met with skepticism because the company has had trouble meeting release dates in the past. Perry assures Marsh that he is certain that they will meet the September 1 date. Marsh considers Perry to be very honest and highly competent. Marsh should:
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Whenever an investment management firm presents investment performance in compliance with the Global Investment Performance Standards (GIPS), it must state how it defines itself as a firm. Under GIPS, a firm may define itself for the purpose of claiming GIPS compliance using any of the following options except when:
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Bill Kimm, CFA owns an asset management firm with offices downtown. To minimize rent expenses, each year Bill ships the previous year's research records to a nearby warehouse. There, the reports are digitized and stored in both electronic and hard-copy forms. After five years, all paper copies are destroyed and only electronic copies are retained. Are Bill's record-retention procedures in compliance with the CFA Institute Standards of Practice?
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The following information involves two research analysts at a brokerage firm.
Erik Bagenot, CFA, is preparing a research report on Global Enterprises, Inc. In preparing the report, he uses materials from many sources. For example, he uses factual information published by Standard & Poor's Corporation without acknowledging the source. He also uses excerpts from a research report prepared by another analyst. Bagenot makes only a slight change in wording for these excerpts, but acknowledges the source.
Sally Wain, who is currently enrolled in the CFA program, is preparing a research report, on Manson Telecommunications. She attends a conference in which several investment experts provide their views about the future prospects of this company. Wain cites several quotations from these investment experts in her report without specific reference.
According to the CFA institute Standards of Professional Conduct involving prohibition against plagiarism, which of the following statements is true?
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Sean Dahib, CFA, is in charge of the compliance program at his investment firm. According to the Standards of Practice Handbook, as a supervisor, Sean should least likely perform which of the following activities?
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Karen Wilson, CFA, supervises eight junior analysts at Spartan Financial Services. Karen suspects that one of the analysts is violating Spartan's personal investing policy. According to the Standards of Practice Handbook, Karen's most appropriate initial action is to.
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Fred Funk, CFA, agreed in writing with his former employer not to solicit former clients for a period of one year after his termination. After he left his former employer, he consulted with a lawyer about whether the agreement was legally enforceable. The lawyer advised Fred that it was doubtful that the agreement could be enforced, so Fred sent a marketing brochure about his new firm to his former clients. According to the Standards of Practice Handbook, which of the following statements is most accurate with respect to Fred's conduct?
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Hal Chen, CFA, develops marketing materials for an investment fund he founded three years ago. The materials show the 3-, 2- and 1-year returns for the fund. He includes a footnote that states in small print “Past performance does not guarantee future returns.” He also includes a separate sheet showing the most recent semi-annual and quarterly returns, which notes they have been neither audited nor verified. Has Chen most likely violated any CFA Institute Standards of Professional Conduct?
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Andrew Mader, CFA, is an analyst with Metro Investment Services. During lunch with some of Metro's managers, Mader is told, “There are going to be major problems at Gebco (a firm that Metro had brought public last year). I was just over there and the place is just crawling with government inspectors.” Mader had just issued a report with a “buy” recommendation on Gebco last week. Mader should:
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Theresa Hatcher, CFA, is making arrangements to establish her own investment advisory business before terminating her relationship with her current employer, Elite Brokers, Inc. Elite is a small company consisting of only six investment professionals and a small support staff. According to CFA Institute Standards of Professional Conduct, which of the following activities is least likely a violation of Hatcher's duty to Elite?
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Gabrielle Gabber CFA has been accused of professional misconduct by one of her competitors. The allegations concern Gabber's personal bankruptcy filing when she was a college student ten years ago and had a large amount of uninsured medical bills. By not disclosing the bankruptcy filing to her clients, did Gabber violate any CFA Institute Standards of Professional Conduct?
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If no other estimator of a given parameter has a sampling distribution with a smaller variance, the estimator used is best characterized as:
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Robert Lamy is an equity advisor. One day he gathered information about three microeconomic variables X, Y, Z. He noticed that whenever variable X increased by one unit, variable Y decreased by 0.3 units but variable Z increase by 0.3 units. The correlation between variables X and Y and the correlation between variables X and Z, respectively, are closest to:
Correlation between Correlation between
Variables X and Y variables X and Z
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An investor plans to retire eight years from today. To maintain her standard of living through retirement, she needs to have $2.5 million accumulated when she retires. Her portfolio is currently valued at $1.2 million and is expected to earn 7.0 percent annually. The minimum annual amount she must save at the beginning of each of the next eight years to achieve a retirement accumulation of $2.5 million is closest to:
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An analyst asked an junior associate to evaluate the performance of group of mutual funds over the last 10 years. The associate calculated the following performance statistics:
The analyst suspects that the associate has made some errors in calculating the performance statistics. Based only on the expected mathematical relationships between the two measures of return and between the two measures of dispersion calculated by the associate, did the associate most likely make errors in calculating the statistics associated with:
Mutual Fund A? Mutual Fund B?
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When using stock return data, a geometric mean return calculation is most likely preferred over a geometric mean calculation because:
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An analyst is investigating the distribution of the SMG stock's return over time. He calculated the mode of 12 percent, the mean of 11 percent, and the median of 11.5 percent. The distribution can best be described as:
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An analyst collects the following set of past stock returns: -2.3%, -5.1%, 7.6%, 8.2%, 9.1%, and 9.8%. Which of the following measures of return is most likely the highest?
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An analyst is investigating one stock with high after-tax return above the benchmark and is concerned about his perceptions of slowdown in the macroeconomic next year. So he adjusts the historical probability of the stock's return above the benchmark. The analyst is best characterized as gaining a (n):
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An economist predicts that over the next year, there is a 56 percent probability that oil prices will fall slightly and a 17 percent probability that new estate tax legislation will be enacted. According to this prediction, the probability that at least one of these independent events will occur is closest to:
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An analyst is investigating the performance of three portfolio over the same time period and gathered the following information:
If the returns from all portfolios were normally distributed, the portfolio that maximized the probability of earning less than the risk-free rate of return is most likely portfolio:
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On 1 January 2009, the value of an investor's portfolio is $89,000. The investor plans to donate $4,000 to charity organization and pay $2,000 to his insurance account on 31 December of 2009, but meanwhile he does not want the year-end portfolio value to be below $89,000. If the expected return on the existing portfolio is 12 percent with a variance of 0.0125, the safety-first ratio that would be used to evaluate the portfolio based on Roy's criterion is closest to:
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An analyst is investigating a stock index and gathered the following information:
If the analyst takes a sample of 56 companies from the index, the standard error of the sample mean is closest to:
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What is the yield on a discount basis for a Treasury bill priced at $97,965 with a face value of $100,000 that has 172 days to maturity?
-
Use the following data to calculate the standard deviation of the return:
·50% chance of a 12% return
·30% chance of a 10% return
·20% chance of a 15% return
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Compared with outcomes that result from collusion, independent action by companies operating in an oligopolistic industry would tend to decrease:
-
In the long run, when the economy is at full employment, will a decrease in the quantity of money due to restrictive monetary policy that brings a decrease in aggregate demand likely result in:
The price level? Real GDP?
-
All else being equal, would appreciation or depreciation of a country's currency most likely result from a (n):
Decrease in the country's real interest rate? Decrease in the country's inflation rate?
-
Is unanticipated inflation likely to result in a gain to:
Employees Borrowers
at the expense of employers? at the expense of lenders?
-
In a flexible exchange rate system, is a country's currency likely to depreciate as a result of an:
Decrease in the Unanticipated shift to a more
real interest rate? expansionary monetary policy?
-
If the central bank unexpectedly shifts to a more restrictive monetary policy, the most likely effect is:
-
The short-run effects of unanticipated expansionary monetary policy are most likely to include:
-
Is monopolistic competition a market in which:
Each seller produces a differentiated product? Compete on price, quality, marketing?
-
At low wage rates, will an increase in the wage rate most likely result in:
The substitution effect? An increase in the supply of labor?
-
An analyst does research about technologically efficient and economically efficient. A method of production is economically efficient when:
-
Given the following possibilities, which one results in an increase in total consumer expenditures?
-
Suppose that rubber is the primary input in the production of golf balls. If the price of rubber increases while all else remains constant, then in the short-run:
-
In which of the following situations when recording inventory at a value greater than its historical cost is permitted?
-
An analyst is preparing common-size financial statements for each of five companies in the same industry during the same period. The most appropriate way of expressing the ending inventory for each company is as a percentage of:
-
An analyst gathered the following information about a company and the company's industry:
After preparing common-size balance sheets for the company and the industry, the analyst noted that the company and the industry both have the same proportion of current liabilities, long-term liabilities, and shareholders' equity. Would the common-size balance sheets for the company or the industry most likely have a higher percentage associated with inventory and accounts receivable, respectively?
Higher percentage Higher percentage associated
associated with inventory with accounts receivable
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All else being equal, a company's cash flow from operating activities for 2008 will most likely be greater than that company's net income for 2008 if, compared with the beginning of the year, the company had a lower balance at the end of the year in:
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An analyst gathered the following information about Koplet Autos Corp financials reports:
·Beginning LIFO Reserve $2,309
·Cost of Goods Sold (COGS) using LIFO $6,160
·COGS using FIFO of $ 4,351
What is the Ending LIFO reserve?
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Using a 365-day year, if a firm has net annual sales of $250,000 and average receivables of $150,000, what is its average collection period using above information?
-
During a period of declining prices, a company using the LIFO inventory method instead of FIFO would most likely report:
-
During periods of rising prices and stable or increasing inventory quantities, using FIFO compared to using LIFO is most likely to result in:
-
An analyst has calculated the following ratios from a company's financial statements:
Based on the information above, during 2009, did the company experience an increase in the:
Asset turnover ratio? Financial leverage ratio?
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A lessee company named YYK corporation entered into a new capital lease agreement with its partner. The lease payments are $200,000 annually and are due at the end of each year for ten years. The appropriate discount rate is 10 percent. Depreciation is on a straight-line basis with zero salvage value. The total expense that should be reported on the company's income statement for the first full year of the new capital lease is closest to:
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General International manufacture Inc. sold a piece of equipment for $50,000 cash. The company paid $150,000 for the equipment several years ago and had a accumulated depreciation of $120,000 at the date of sale. Due to the equipment sale, the company's cash flow from operations is:
-
An analyst gathered following information about Fuzi Manufacture Inc in year 2009:
On the year 2009 statement of cash flows, the company would report net cash flow from investing activities (CFI) closest to:
-
Fillinion Corp's stock transactions during the year 2009 were as follows:
When computing for earnings per share (EPS) computation purposes, what was Fillinion's weighted average number of shares outstanding during 2009?
-
During a period of rising prices, the financial statements of a firm using first in first out (FIFO) reporting instead of last in first out (LIFO) reporting would show:
-
Two firms build identical buildings with identical costs over the same 2-year period. Firm A pays for the $1 million cost of construction with general cash flow and has no debt on its books. Firm B borrows the $1 million to fund construction at a cost of 10 percent. When the buildings are completed (at the end of two years), at what cost will the firms report the buildings on their balance sheets?
-
Over the life of a zero-coupon bond, are the issuing company's interest expense and cash flow from operations, respectively, overstated?
interest expense understated Cash flow from operations understated
-
A company purchased a new equipment oven directly from Italy for $13,289. It will work for 5 years and has no salvage value. The tax rate is 41 percent, and annual revenues are constant at $7,192. For financial reporting, the straight-line depreciation method is used, but for tax purposes depreciation is accelerated to 35 percent in years 1 and 2, and 30 percent in year 3. For purposes of this exercise ignore all expenses other than depreciation. What is the annual depreciation expense for financial reporting purposes?
-
If a company is a lessee and inventory prices and quantities have been increasing, the accounting methods used for new lease treatment and inventory accounting method, respectively, that are most likely to have understated asset turnover ratios are:
New lease treatment Inventory accounting method
-
Which one of the following items would most likely result in a permanent difference between pretax financial income and taxable income?
-
An analyst is investigating an investment project of Hellet Corporation. The investment project with the same risk as the company has the following expected net cash inflows during year 1 to year 4:
The company's cost of equity is 12 percent, cost of debt is 7 percent, and weighted average cost of capital is 9 percent, the risk-free rate is 5%. The maximum that the company should be willing to invest in the project is closest to:
-
Selected financial information gathered from Alpha Company and Omega Corporation follows:
Which of the following statements is most accurate?
-
Which of the following ratios would least likely measure liquidity?
-
Falcon Financial Group is considering the purchase of Company A or Company B based on a low price-to-book investment strategy that also considers differences in solvency. Selected financial data for both firms, as of December 31,2009,as follows:
The firms' financial statement footnotes contain the following:· Company A values its inventory using the first in, first out (FIFO) method.
· Company B's inventory is based on the last in, first out (LIFO) method. Had Company B used FIFO, its inventory would have been $700 million higher.
· Company A leases its manufacturing plant. The remaining operating lease payments total $1,600 million. Discounted at 10%, the present value of the remaining payments is $1,000 million.
· Company B owns its manufacturing plant.
To make the firms financials ratios comparable, calculate the adjusted price-to-book ratios for Company A and Company B.
Company A Company B
-
For a company that needs to borrow the same amount of cash, which of the following statements about the relative impact of issuing interest-bearing debt and zero-coupon bonds on the financial statements is (are) true?
Zero coupon bonds Interest-bearing debt
-
Compared to a classified board (staggered multiple-year terms), do annual terms for members of a company's board better serve the interests of the company's shareowners by providing the Board with:
Flexibility to handle changes in the marketplace? Continuity of expertise?
-
A firm is reviewing an investment opportunity that requires an initial cash outlay of $336,875 and promises to return the following irregular payments:
Year 1: $100,000
Year 2: $82,000
Year 3: $76,000
Year 4: 5111,000
Year 5: $142,000
If the required rate of return for the firm is 8 percent, what is the net present value of the investment?
-
Given a project with normal cash flows, the point at which the net present value profile intersects the vertical axis is most likely to be the:
-
An analyst of a company is evaluating the following investment proposals A, B, C that have the same risk as the company:
Which of the following statements about the proposals is most accurate?
-
Which of the following statements about Net Present Value (NPV) and Internal Rate of Return (IRR) is least accurate?
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Fiona Acquisition, Inc., is considering the purchase of Kingbet Company. The acquisition would require an initial investment of $190,000, but Fiona's after-tax net cash flows would increase by $30,000 per year and remain at this new level forever. Assume a cost of capital of 15 percent. Should Fiona take the action to buy Kingbet using above information?
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Pholep Productions is estimating the weighted average cost of capital (WACC). They have several pieces of data to consider. The firm pays 60 percent of its earnings out in dividends. The return on equity (ROE) is 16 percent. Last year's earnings were $4.00 per share and the dividend was just paid to shareholders. The current price of shares is $35.00. If the firm must issue new shares of common stock, they must pay a flotation cost to the investment bankers of 6 percent. The firm's optimal capital structure includes 10 percent preferred stock, 40 percent debt and 50 percent equity. They can sell additional bonds at a rate of 9 percent. The cost of issuing new preferred stock is 13 percent. The firm's marginal tax rate is 40 percent. Pholep Productions' weighted average cost of capital (WACC) using retained earnings is closest to:
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A company is evaluating the following three capital projects that have the same risk as the company:
If the company accepts each project, the actual cash flows associated with each project are received as expected, and the company's weighted average cost of capital remains unchanged over the life of each project, the project that is most likely to exactly earn its estimated internal rate of return is project:
-
An analyst does research about relationship between marginal cost of capital schedule and investment opportunity schedule. As a company continues to raise additional capital and invests in additional capital investment projects, is that company likely to experience an upward sloping:
marginal cost of capital schedule? investment opportunity schedule?
-
Barap.Co has 2 million shares outstanding and this year's earnings are $4 million. The company decides to repurchase shares in the open market. Barap's current share price is $40. If Barap uses $20 million idle cash to repurchase shares at the market price, the company's EPS will be closest to:
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An analyst gathered the following information about a company and that company's common stock:
The company's investment projects for the year are expected to return 17 to 20 percent. Which of the following best characterizes the company and the company's common stock?
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Which of the following system adopts a three-tier classification system:
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An investor opens a margin account with an initial deposit of $5,000. He then purchases 200 shares of PRK stock at $46 in his margin account, which has a margin maintenance requirement of 25 percent. Ignoring commissions and interest, the minimum price that PRK stock can fall to before the investor receives a margin call is closest to:
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Davis Company, Inc. (DCI) earned $5 a share last year and paid dividend of $2 a share. The company is expected to grow by 8 percent annually and continue its payout ratio for the foreseeable future. An investor with a 11 percent required return expects to sell the stock at $75 two years from now. The maximum amount that an investor should be willing to pay for DCI stock today is closest to:
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An analyst gathered the following information from a company's most recent financial statements (U.S. $ in millions):
The analyst also determined that the company uses the LIFO inventory method, but most companies in the industry use the FIFO method. The footnotes to the financial statements indicate that if the company had used the FIFO method, the inventory balance would have been $45 million higher than the amount reported on the company's most recent financial statements. If the company's common stock is currently selling for $59 per share, the most appropriate price to book value ratio to use in valuing the company is:
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Which of the following statements about a stock market series is least accurate?
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An analyst gathered the following information about a perpetual preferred stock:
The current risk-free rate of return is 2 percent. The perpetual preferred stock is most appropriately described as being:
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An analyst gathered the following information about Fuzzy Corporation on 2009:
The expected dividend payout ratio and the leading price/earnings (P/E) ratio, respectively, are closest to:
Expected dividend payout ratio Leading P/E ratio
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An analyst gathered the following information about a company:
The company's potential (sustainable) growth rate is closest to:
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Which of the following statements concerning industry analysis is least accurate?
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Which of the following statements concerning security valuation is least accurate?
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An analyst gathered the following annual data for SMG Corporation on 2008:
The SMG Corporation's estimated dividend growth rate is closest to:
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An analyst gathered the following information about a futures market contract:
If no funds are withdrawn and margin calls are met at the beginning of the next day, the ending balance on Day 3 for an investor with a long position of 10 contracts is closest to:
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An investor buys a stock at $90 and also buys a put option on the stock with a put price of $4 and having an exercise price of $80. At expiration of the put option, the stock price has fallen to $60. The loss for the investor's position would be:
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What is the most likely effect of an increase in volatility on the price of a:
Call option? Put option?
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The following information relates to an investor's positioning the futures market:
If the investor deposited enough funds to just meet the initial margin requirement, the amount of funds that the investor would be required to deposit on Day 2 is closest to:
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Which of the following statements regarding the seller of a call and a put is true? A call writer:
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TDK commercial bank makes an adjustable rate mortgage for a big construction customer. Which of the following would be an appropriate position for the bank to hedge its risk with this loan? TDK should pay:
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For an option-free bond, if yields increase by 200 basis points, the parts of the total estimated percentage price change attributable to duration and the convexity adjustment, respectively, will most likely be:
Part of the total estimated Part of the total estimated percentage price
percentage price change change attributable to the convexity
attributable to duration adjustment
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Which of the following statements about option-adjusted spread and nominal spread is most accurate?
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An analyst gathered the following information:
For the tax-exempt security, the investor's tax-equivalent yield is closest to:
-
Do measures that take into account how the expected cash flows from a bond may change as yields change include:
Modified duration? Modified convexity?
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An analyst gathered the following information about a bond:
The bond's yield to call is closest to:
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Which of the following will most likely have the least impact on a corporate bond rating?
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A five-year bond with an 8.00 percent semiannual coupon currently trades at 102.345 percent of a par value of $1,000. Which of the following is closest to the current yield on the bond?
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If interest rate falls, which of the following statements is true?
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If a 15-year, $1,000 U.S. semiannually zero-coupon bond is priced to yield 10 percent, what is its market price?
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At 1 January, 2009, an option-free 8 percent annual coupon bond, with 10 years to maturity and a par value of $1,000, had a discount rate of 9 percent. On 1 January 2010, the discount rate had decreased to 8.5 percent because of an upgrade in the bond's rating. If interest is paid annually, the portions of the bond's price change from 2009 to 2010 attributable to the passage of time and the rating upgrade respectively, are closest to:
Passage of time Rating upgrade
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The concept that forward rates reflect investors' expectations of future rates plus a liquidity premium to compensate them for exposure to interest rate risk is associated with which of the following explanations of the term structure of interest rates?
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Consider a corporate bond with a yield of 6.8% and a municipal bond (with equivalent risk) with a 4.9% yield. Which of the following statements is most accurate?
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Hedge funds that contain infrequently traded assets would most likely exhibit a downward bias with respect to:
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Venture capital investments used to provide capital for companies initiating commercial manufacturing and sales are most likely to be considered a forma of :
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Which classification of hedge funds is least likely to use a short position in stock as a part of its strategy?
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An investor gathered the following information about a real estate investment:
The investment's net present value (NPV) and yield to an equity investor respectively are best described as being:
Investment's NPV Investment's yield to an equity investor
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A typical hedge fund fee structure is least likely to include a:
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Does trading take place only once a day at closing market prices in the case of:
Exchange traded funds? Traditional mutual funds?
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With respect to the security market line, if two risky assets have the same covariance with the market portfolio but have different estimated rates of return, the most accurate conclusion is that the two risky assets have:
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An analyst is checking the information from his two clients William and Robert. William has been retired and is primarily concerned with achieving an investment return no less than the rate of inflation. Jules York is just in this mid-age and primarily concerned with his portfolio long term prospects setting a proper balance between capital gains and current income. Which of the following investment objectives is most appropriate for William and Robert, respectively?
William Robert
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Which of the following has the greatest liquidity needs on average?
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An analyst is investigating the security market line (SML). Given no major changes in asset risk characteristics, which of the following changes is most likely to be associated with an increase in the slope of the security market line?
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Which of the following is not a characteristic of a portfolio located on the efficient frontier?
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An analyst wants to determine whether Dover Holdings is overvalued or undervalued, and by how much (expressed as percentage return). The analyst gathers the following information on the stock:
· Market standard deviation = 0.70
· Covariance of Dover with the market = 0.85
· Dover's current stock price (P0) = $35.00
· The expected price in one year (P1) is $39.00
· Expected annual dividend = $1.50
· 3-month Treasury bill yield = 4.50%
· Historical average S&P 500 return = 12.0%
Dover Holdings stock is:
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Carolina Ochoa, CFA, is the chief financial officer at Pantagonia Computing. Ochoa is currently the subject of an inquiry by Pantagonia's corporate investigations department. The inquiry is the result of an anonymous complaint accusing Ochoa of falsifying travel expenses for senior management related to a government contract. According to the CFA Institute Code of Ethics and Standards of Professional Conduct, it is most appropriate for Ochoa to disclose the allegations:
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Ileana Inkster, CFA, was recently offered a senior management position within the trust department at a regional bank. The department is new, but the bank has plans to expand it significantly over the next few months. Inkster has been told she will be expected to help grow the client base of the trust department. She is informed that the trust department plans to conduct educational seminars and pursue the attendees as new clients. Inkster notices that recent seminar advertisements prepared by the bank's marketing department do not mention investment products will be for sale at the seminar. The ads indicate attendees can "learn how to immediately add $100,000 to their net worth." What should Inkster most likely do to avoid violating any CFA Institute Standards of Professional Conduct?
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Beth Kozniak, a CFA candidate, is an independent licensed real estate broker and a well-known property investor. She is currently brokering the sale of a commercial property on behalf of a client in financial distress. If the client's building is not sold within 30 days, he will lose the building to the bank. A year earlier, another client of Kozniak's had expressed interest in purchasing this same property. However, she is unable to contact this client, and she has not discovered any other potential buyers. Given her distressed client's limited time frame, Kozniak purchases the property herself and forgoes any sales commission. Six months later, she sells the property for a nice profit to the client who had earlier expressed interest in the property. Has Kozniak most likely violated the CFA Institute Standards of Professional Conduct?
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Mariam Musa, CFA, head of compliance at Dunfield Brokers, questions her colleague Omar Kassim, a CFA candidate and a research analyst, about his purchase of shares in a company for his own account immediately before he publishes a "buy" recommendation. He defends his actions by stating he has done nothing wrong because Dunfield does not have any personal trading policies in place. The CFA Institute Standards of Professional Conduct were most likely violated by:
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Which of the following statements does not accurately represent the objectives of Global Investment Performance Standards (GIPS)? The GIPS standards:
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James Simone, CFA, the chief financial officer of a publicly listed company, seeks to improve the quality of his company's communication with institutional fund managers. He holds an investor briefing with this group the evening before the company earnings are announced. The company's quarterly earnings are broadcast in a press release the next day before the market opens. Theearnings information in the investor briefing is identical to that in the press release.Did Simone most likely violate the CFA Institute Standards of Professional Conduct?
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Diana Fairbanks, CFA, is married to an auditor who is employed at a large accounting firm. When her husband mentions that a computer firm he audits will receive a qualified opinion, she thinks nothing of it. Later that week, when she reviews a new client account, she notices there are substantial holdings of this computer firm. When she does a thorough internet search for news on the company, she does not find anything about its most recent audit or any other adverse information. Which of the following actions concerning the computer stock should Fairbanks most likely take to avoid violating the CFA Institute Standards of Professional Conduct?
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Margie Germainne, CFA, is a risk management consultant who has been asked by a small investment bank to recommend policies to prevent bank employees from front running client orders. These clients generally invest in one or more of the bank's large cap equity unit trusts. To ensure compliance with the CFA Institute Standards of Professional Conduct, Germainne should least likely recommend which of the following? Employees should be restricted from trading:
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Molly Burnett, CFA, is a portfolio manager for a fund that only invests in environmentally friendly companies. A multinational utility company recently acquired one of the fund's best-performing investments, a wind power company. The wind power company's shareholders received utility company shares as part of the merger agreement. The utility has one of the worst environmental records in the industry, but its shares have been one of the top performers over the past 12 months. Because the utility pays a high dividend every three months, Burnett holds the utility shares until the remaining two dividends are paid for the year then sells the shares. Burnett most likely violated the CFA Institute Standard of Professional Conduct concerning:
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Johannes Meir, CFA, is a compliance officer for Family Estate Planning, LLC, a private wealth consulting firm. Many of his colleagues have family members who have started their own retail businesses. Some of Meir's colleagues have been asked by relatives to serve as non-executive directors or advisers to their companies. Meir should most likely recommend which of the following policies to ensure compliance with the CFA Institute Standards of Professional Conduct?
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Which of the following statements concerning requirements under Standard V(B)-communication with Clients and Prospective Clients is least likely accurate? This standard requires members and candidates to:
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Gabrielle Gabbe, CFA has been accused of professional misconduct by one of her competitors. The allegations concern Gabbe's personal bankruptcy filing 10 years ago when she was a college student and had a large amount of medical bills she could not pay. By not disclosing the bankruptcy filing to her clients, did Gabbe most likely violate any CFA Institute Standards of Professional Conduct?
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Chan Liu, CFA, is the new research manager at the Pacific MicroCap Fund. Liu observed the following activities after she published a research report on a thinly traded micro-cap stock that included a "buy" recommendation:
·Pacific traders purchased the stock for Pacific's proprietary account and then purchased the same stock for all client accounts;
·And Pacific marketing department employees disseminated positive, but false, information about the stock in widely read internet forums.
Liu notes the stock's price increased more than 50% within a period of two days and was then sold for Pacific's account. Which of the following steps is most appropriate for Liu to take to avoid violating the CFA Institute Standards of Professional Conduct?
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Francesca Ndenda, CFA, and Grace Rutabingwa work in the same department for New Age Managers, with Rutabingwa reporting to Ndenda. Ndenda learns that Rutabingwa received a Notice of Enquiry from the Professional Conduct Program at CFA Institute regarding a potential cheating violation when she sat for the CFA exam in June. As Rutabingwa's supervisor, Ndenda is afraid that Rutabingwa's behavior will be seen as a violation of the Code and Standards. Does Ndenda most likely have cause for concern?
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According the GIPS standards, for periods beginning on or after 1 January 2011, the aggregate fair value of total firm assets most likely includes all:
-
Which of the following statements concerning why the Global Investment Performance Standards (GIPS) were created is least likely correct? The GIPS standards were created to:
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Jan Loots, CFA, quit his job as a portfolio manager at an investment firm with whom he had a non- solicitation agreement he signed several years ago. Loots received permission to take his investment performance history with him and also took a copy of the firm's software-trading platform. Subsequently, Loots sent out messages on social media sites announcing he was looking for clients for his new investment management firm. Access to Loots's social media sites is restricted to friends, family, and former clients. Loots least likely violated the CFA Institute Standards of Professional Conduct concerning his:
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Sergio Morales, CFA, believes he has found evidence that his supervisor is engaged in fraudulent activity involving a client's account. When Morales confronts his supervisor, he is told the client is fully aware of the issue. Later that day, Morales contacts the client and after disclosing the fraudulent activity, he is told by the client to mind his own business. Following the requirements of local law, Morales provides all of his evidence, along with copies of the client's most recent account statements, to a government whistleblower program. Has Morales most likely violated the CFA Institute Standards of Professional Conduct?
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For a positively skewed unimodal distribution, which of the following measures is most accurately described as the largest?
-
A technical analyst observes a head and shoulders pattern in a stock she has been following. She notes the following information:
Based on this information, her estimate of the price target is closest to:
-
The following sample of 10 items is selected from a populatian. The population variance is unknow.
The standard error of the sample mean is closest to:
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A portfolio manager estimates the probabilities of the following events for a mutual fund:
·Event A: the fund will earn a return of 5%.
·Event B: the fund will earn a return below 5%
The least appropriate description of the events is that they are:
-
The following chart is best described as an example of which type of technical analysis chart?
-
In setting the confidence interval for the population mean of a normal or approximately normal distribution, and given that the sample size is small, Student's t-distribution is the most appropriate approach when the variance is:
-
A stock is declining in price and reaches a price range wherein buying activity is sufficient to stop the decline. This range is best described as the:
-
An analyst collects data relating to five commonly used measures of financial leverage and interest coverage for a randomly chosen sample of 300 firms. The data come from those firms' fiscal year 2013 annual reports. These data are best characterized as:
-
A sample of 25 observations has a mean of 8 and a standard deviation of 15. The standard error of the sample mean is closest to:
-
If a stock's continuously compounded return is normally distributed, then the distribution of the future stock price is best described as being:
-
Independent samples drawn from normally distributed populations exhibit the following characteristics:
Assuming that the variances of the underlying populations are equal, the pooled estimate of the common variance is 2,678.05. The t-test statistic appropriate to test the hypothesis that the two population means are equal is closest to:
-
The following information is available for a portfolio:
The return on the portfolio is closest to:
-
A sample of 240 managed portfolios has a mean annual return of 0.11 and a standard deviation of returns of 0.23. The standard error of the sample mean is closest to:
-
A two-tailed t-test of the hypothesis that the population mean differs from zero has a p-value of 0.0275. Using a significance level of 5%, the most appropriate conclusion is:
-
Which of the following is the least likely outcome when a monopolist adopts first-degree price discrimination because of customers' differing demand elasticities?
-
The primary monetary policy goal of most major central banks is best characterized as:
-
Which of the following is least likely to be a valid function/characteristic of money? Money:
-
Six companies in an industry have the following market shares:
If Companies D and F merge into a new Company, G, the industry's three-company concentration ratio would be closest to:
-
Which of the following will most likely cause the short-run aggregate supply (SRAS) curve to shift to the right?
-
A country's international transactions accounts data for last year are presented in its domestic currency:
The current account balance is closest to:
-
The unemploym ent rate is best described as the ratio of unemployed to:
-
Assume that two firms in a duopoly enter into a collusive agreement in an attempt to form a cartel and restrict output, raise prices, and increase profits. According to the Nash equilibrium, a low price is most likely charged by:
-
First-degree price discrimination is best described as pricing that allows producers to increase their econom ic profit while consumer surplus:
-
Which characteristic is a firm least likely to exhibit when it operates in a market with a downward sloping demand curve, many competitors, and zero economic profits in the long run?
-
An expansionary fiscal policy is least likely to include an increase in:
-
The total output in units and average selling prices in a hypothetical economy producing only two products, X and Y, is provided:
If the implict it price deflator for GDP in Year 1 was 100,for Year 2,it is closest to
-
Information about the coupon rates on the various long-term fixed-rate debt issue of a company can most likely be found in the:
-
A company is purchasing a customer list that it expects will provide economic benefits for the next 5years.The company chooses to use an accelerated amortization method.The choice will most likely resultin:
-
The following information (in millions) on a company is available:
The amount of cash (in millions) that the company paid to its suppliers is closest to:
-
Which of the following is most likely a benefit of the direct method for reporting cash flow from operating activities? Compared with the indirect method, the direct method:
-
On 1 January, a company that prepares its financial statements according to International Financial Reporting Standards (IFRS) arranged financing for the construction of a new plant. The company:
·borrowed NZ$5,000,000 at an interest rate of 8%,
·issued NZ$5,000,000 of preferred shares with a cumulative dividend rate of 6%, and
·temporarily invested NZ$2,000,000 of the loan proceeds during the first six months of construction and earned 7% on that amount
The amount of financing costs to be capitalized to the cost of the plant in the first year is closest to:
-
The following information for the current year is available for a company that prepares its financial statements in accordance with US GAAP.
The company's operating profit(inthousands) is closest to:
-
For a company that prepares its financial statements under International Financial Reporting Standards (IFRS), for which of the following assets is it most likelythat the company could report using the fair value model?
-
The method a high end custom-built motorcycle manufacturer uses to value its inventory results in the matching of the physical flow of the particular items sold, and the items remaining in inventory, to their actual cost. Which of the following inventory valuation methods is the manufacturer most likely using?
-
An analyst is reviewing the property, plant, and equipment disclosure related to a company's warehouse. The company uses the International Financial Reporting Standards (IFRS) revaluation model. The analyst would least likely be able to determine:
-
Selected information from a company's comparative income statement and balance sheet is presented below:
The cash collected from customers in 2013 is closest to:
-
The following information applies to a capital asset of a company:
This company uses the straight line depreciation method for this capital asset.At the end of 2014, the expected remaining life of the capital asset, in years, is closest to:
-
Assume a company has the following portfolio of marketable securities, which were acquired at the end of last year:
If the company reports under IFRS compared with US GAAP, its net income in the current year will most likely be:
-
Other comprehensive income is least likely to include gains or losses on:
-
A company that reports in accordance with International Financial Reporting Standards (IFRS) does not use the cost model to value its investment properties and property, plant, and equipment.
Information related to an investment property and a plant is as follows:
On its income statement for the year, the company will most likely recognize a gain (in thousands) of:
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A company that uses International Financial Reporting Standards (IFRS) entered into a three-year construction project with a total contract price (all figures in thousands) of $5,300 and expected costs of $4,400. At inception, the outcome of the contract could not be reliably measured, but the company did expect to recover its costs. Actual results are shown in the following table:
The amount of revenue (inthousands) the companyrecognizedin Year2 was closest to:
-
Under IFRS, the costs incurred in the issuance of bonds are most likely:
-
A company values its ending inventory using the prices of its most recent purchases. The inventory valuation method that the company is most likely using is:
-
Income statements for two companies (A and B) and the common-size income statement for the industry are provided in the following table:
The best conclusion an analyst can make is that:
-
If a company has a deferred tax asset reported on its statement of financial position and the tax authorities reduce the tax rate, which of the following statements is most accurate concerning the effect of the change? The existing deferred tax asset will:
-
The following common-size income statement data and tax rates are available on a company.
The profitability ratio that had the largest absolute increase in value in the current year is the:
-
The following data are available for a company's first year of operations:
The company's end-of-year balance sheet will most likely include (in thousands) a deferred tax
-
The following data are available on a company:
The value of the company's liquidity ratio that decreased the most in the current year, compared with the prior year, is the:
-
Because of significant changes in the marketplace, the demand for a company's product has fallen and is not expected to recover to previous levels. The following information is related to the patent under which the product is produced:
Which of the following statements is most accurate? The patent is impaired under:
-
A compary is selling a Iong-lived asset with a carrying amount of $?0,000 for $50,000. The original cost of this asset was $120,000. In the year of sale, this event is most likely to be reported on the income statement as:
-
The unit contribution margin for a product is $20. A firm's fixed costs of production up to 300,000 units is $500,000. The degree of operating leverage (DOL) is most likely the lowest at which of the following production levels (in units):
-
A firm's price-to-earnings ratio (P/E) is 12.5. The firm has decided to repurchase shares using external funds that have an after-tax cost of 9%. After the repurchase, the earnings per share (EPS) will most likely:
-
A company's optimal capital budget most likely occurs at the intersection of the:
-
The per unit contribution margin for a product is $12. Assuming fixed costs of $12,000, interest costsof $3,000, and taxes of $2,000, the operating breakeven point (in units) is closestto:
-
For a 90-day US I reasury bill selling at a discount, which of the following methods most likely results in the highest yield?
-
A firm's estimated costs of debt,preferred stock,and comman stock are 12%,17%.and20%, respectively.Assuming equal funding from each source and a marginal tax rate of 40%,the weighted average cost of capital(WAAC)is closest to:
-
After a two-for-one stock split, which of the following will most likely change relative to its pre-split value?
-
A company decides to repurchase 5 million of its outstanding 20 million shares with debt funding.
After the repurchase, the company's after-tax earnings decline by 20%. The new earnings per share (EPS) is most likely:
-
The market price of a company's stock is $5 per share with 50 million shares outstanding. The company decides to use its cash reserves to undertake a $10 million share buyback. Just prior to the buyback, the company reports total assets of $650 million and total liabilities of $450 million. The company's book value per share after the share buyback is closest to:
-
A trader buys 500 shares of a stock on margin at $36 a share using an initial leverage ratio of 1.66. The maintenance margin requirement for the position is 30%. The stock price at which the margin call will occur is closestto:
-
After the public announcement of the merger of two firms, an investor makes abnormal returns by going long on the target firm and short on the acquiring firm. This most likely violates which form of market efficiency?
-
The data for two stocks in an index are as follows:
Assuming the beginning value of the float-adjusted market-capitalization-weighted equity index is100, the ending value is closestto:
-
Which of the following statements is moat accurate in an efficient market?
-
Participating preference shares are least likely to entitle the shareholders to participate in:
-
Which of the following statements regarding a commodity index is most accurate?
-
Compared with public equity markets, which of the following statements is most accurate about private equity markets? Operating in the private market:
-
An internal evaluation of the trading behavior of three fund managers of a mutual fund company during the past year has revealed the following:
Which of the three managers most likely displayed the disposition effect bias?
-
An equity analyst follows two industries with the following characteristics:
Based on the above information, the analyst will most appropriately conclude that, compared with the firms in Industry 2, those in Industry 1 would potentially have:
-
Which of the following statements concerning companies in different industry environments is most accurate?
-
For a US investor, which of the following statements concerning investing in depository receipts (DRs) is least accurate?
-
Firms with which of the following characteristics are most likely candidates for a management buyout (MBO)?
-
Consider a $100 par value bond, with an 8% coupon paid annually, maturing in 20 years. If the bond currently sells for $96.47, the yield to maturity is closest to:
-
Which of the following terms in a bond issue most likely helps to reduce credit risk?
-
The duration and convexity of an option-free bond priced at $90.25 are 10.34 and 151.60,
respectively. If yields increase by 200 bps, the percentage price change is closest to:
-
Using the "Four Cs of Credit Analysis" framework, which of the following is the least likely factor to be considered under the category of "capacity"?
-
A portfolio manager holds the following three bonds, which are option free and have the indicated durations.
The portfolio's duration is closest to:
-
Duration is most accurate as a measure of interest rate risk for a bond portfolio when the slope of the yield curve:
-
The following table provides information about a pot[folio of three bonds.
Based on this intormatlon the duration ot the portfolio is closest to
-
Consider a $/00 par value bond with a 7% coupon paid annually and 5 years to maturity At a discount rate of 65% the value of the bond today is $102.08 One day later the discount rate increases to 75% Assuming the discount rate remains at 75% over the remaining life of the bond what is most likely to occur to the price of the bond between today and maturity?
-
Using the following US Treasury/forward rates the value of a
year $100 par value Treasury/bond with a 5% coupon rate is closest to:
-
A bond with a par value of $/00 matures in /0 years with a coupon of 45% paid semiannually; it is priced to yield 583% and has a modified duration of 78/ If the yield of the bond declines by 025% the approximate percentage price change for the bond is closest to:
-
A portfolio contains equal weights of two securities having the same standard deviation.If the correlation between the returns of the two securities was to decrease, the portfolio risk would most likely:
-
Last year, a portfolio manager earned a return of 12%. The portfolio's beta was 1.5. For the same period, the market return was 7.5%,and the average risk-free rate was 2.7%. Jensen's alpha for this portfolio is closest to:
-
Compared with investment-grade bonds, the spread movements on high-yield bonds are influenced:
-
Which of the following is most likely a limitation of the yield to maturity measure?
-
An investor notices that the price of an American call option is above the price of a European call option with otherwise identical features. What is the most likely reason for this difference?
-
Which of the following statements is least accurate concerning differences in the pricing of forwards and futures?
-
Which statement best describes the early exercise of American options? Early exercise may be advantageous for:
-
When valuing a call option using the binomial model, an increase in the probability that the underlying will go up, most likely implies that the current price of the call option:
-
Valuation of a swap during its life will leastlikely involve the:
-
An investor purchases ABC stock at $71 per share and executes a protective put strategy. The put
option used in the strategy has a strike price of $66, expires in two months, and is purchased for $1.45. At expiration, the protective put strategy breaks even when the price of ABC is closest to:
-
Concentrated portfolio strategies are attractive because of their:
-
Which of the following is most likely a private equity strategy?
-
Which of the following is most likely a private real estate investment vehicle?
-
If the price of a commodity futures contract is below the spot price, it is most likely that the:
-
A hedge fund that implements trades based on a top-down analysis of expected movements in economic variables most likely uses a(n):
-
In a strategic asset allocation, assets within a specific asset class are least likely to have:
-
Which of the following is least likely an assumption of the capital asset pricing model (CAPM)?
-
The following table shows data for the stock of JKU and a market index.
Based on the capital asset pricing model (CAPM), JKU is mostlikely:
-
A portfolio with equal parts invested in a risk-free asset and a risky portfolio will most likely lie on:
-
A stock has a correlation of 0.45 with the market and a standard deviation of returns of 12.35%. If the market has a standard deviation of returns of 8.25%, then the beta of the stock is closest to:
-
An investor's transaction in a mutual fund and the fund's returns over a four-year period are provided in the following table：
based on this data,the money-weighted return(or internal rate of return)for the investor is closest to:
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Vishal Chandarana, an unemployed research analyst, recently registered for the CFA Level Ⅰexam. After two months of intense interviewing, he accepts a job with a stock brokerage company in a different region of the country. Chandarana posts on a blog how being a CFA candidate really helped him get a job. He also notes how relieved he was when his new employer did not ask him about being fired from his former employer.
Which CFA Institute Standards of Professional Conduct did Chandarana least likely violate?
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David Donnigan enrolled to take the Level ⅠI CFA examination in the current year, but he did not take the exam. Donnigan advised his employer that he passed Level Ⅱ. Subsequently, he registered to take the Level Ⅱ exam the next year. Which CFA Institute Standards of Professional Conduct did Donnigan least likely violate? The standard related to:
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lan O'Sullivan, CFA, is the owner and sole employee of two companies, a public relations firm and a financial research firm. The public relations firm entered into a contract with Mallory Enterprises to provide public relations services, with O'Sullivan receiving 40,000 shares of Mallory stock in payment for his services. Over the next 10 days, the public relations firm issued several press releases that discussed Mallory's excellent growth prospects. O'Sullivan, through his financial research firm, also published a research report recommending Mallory stock as a "buy." According to the CFA Institute Standards of Professional Conduct, O'Sullivan is most likely required to disclose his ownership of Mallory stock in:
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James Woods, CFA, is a portfolio manager at ABC Securities. Woods has reasonable grounds to believe his colleague, Sandra Clarke, a CFA Level ⅠI candidate, is engaged in unethical trading activities that may also be in violation of local securities laws. Woods is not Clarke's supervisor, and her activities do not impact Woods or any of the portfolios for which he is responsible. Based on the Code and Standards, the recommended course of action is for Woods to:
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After a firm presents a minimum required number of years of GIPS- compliant performance, the firm must present an additional year of performance each year, building up to a minimum of:
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Madeline Smith, CFA, was recently promoted to senior portfolio manager. In her new position, Smith is required to supervise three portfolio managers. Smith asks for a copy of her firm's written supervisory policies and procedures but is advised that no such policies are required by regulatory standards in the country where Smith works. According to the Standards of Practice Handbook, Smith's most appropriate course of action would be to:
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Nicholas Bennett, CFA, is a trader at a stock exchange. Another trader approached Bennett on the floor of the exchange and verbally harassed him about a poorly executed trade. In response, Bennett pushed the trader and knocked him to the ground. After investigating the incident, the exchange cleared Bennett from any wrongdoing. Which of the following best describes Bennett's conduct in relation to the CFA Institute Code of Ethics or Standards of Professional Conduct?
Bennett:
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According to the CFA Institute Code of Ethics and Standards of Professional Conduct, trading on material nonpublic information is least likely to be prevented by establishing:
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During an on-site company visit, Marsha Ward, CFA, accidentally overheard the chief executive officer of Stargazer, Inc. discussing the company's tender offer to purchase Dynamica Enterprises, a retailer of Stargazer products. According to the CFA Institute Standards of Professional Conduct, Ward most likely cannot use the information because:
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According to the Global Investment Performance Standards (GIPS), firms must do all of the following except:
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Adira Badawi, CFA, who owns a research and consulting company, is an independent board member of a leading cement manufacturer in a small local market. Because of Badawi's expertise in the cement industry, a foreign cement manufacturer looking to enter the local market has hired him to undertake a feasibility study. Under what circumstances can Badawi most likely undertake the assignment without violating the CFA Institute Code of Ethics and Standards of Professional Conduct?
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Which of the following is not a component of the CFA Institute Code of Ethics?
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According to the Global Investment Performance Standards (GIPS), which of the following is not a part of the verification process? Testing whether the:
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Jiro Sato, CFA, deputy treasurer for May College, manages the Student Scholarship Trust. Sato issued a request for proposal (RFP) for domestic equity managers. Pamela Peters, CFA, a good friend of Sato, introduces him to representatives from Capital Investments, which submitted a proposal. Sato selected Capital as a manager based on the firm's excellent performance record.
Shortly after the selection, Peters, who had outstanding performance as an equity manager with another firm, accepted a lucrative job with Capital. Which of the CFA cha~terholders violated the CFA Institute Standards of Professional Conduct?
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Claire Jones, CFA, is an analyst following natural gas companies in the United States. At an industry energy conference, the chief financial officer of Alpine Energy states that the company is interested in making strategic acquisitions. At a separate event, Alpine's head of exploration commented that he is bullish on natural gas production prospects within northeastern Pennsylvania. Jones is aware that Alpine currently has very little exposure to this region. She also knows another company in her universe, Pure Energy, Inc. is based in northeastern Pennsylvania and controls significant assets in the area. Pure Energy is highly leveraged, and Jones believes it will need to raise additional capital or partner with another firm to move to the production phase with their assets. Jones attempts tocontact Alpine's chief executive officer with an unrelated question and is told he is unavailable because he is on a business trip to northeastern Pennsylvania. Jones updates her research on Pure Energy and then recommends the stock to Lisa Wong, CFA, a portfolio manager, who purchases significant positions in client accounts. The following week, Pure Energy announces it has entered into an agreement to be purchased by Alpine for a significant premium. Has either Jones or Wong most likely violated standards with regard to the integrity of capital markets?
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Ron Dunder, CFA, is the CIO for Bling Trust (BT), an investment adviser. Dunder recently assigned one of his portfolio managers, Doug Chetch, to manage several accounts that primarily invest in thinly traded micro-cap stocks. Dunder soon notices that Chetch places many stock trades for these accounts on the last day of the month, toward the market's close. Dunder finds this trading activity unusual and speaks to Chetch, who explains that the trading activity was completed at the client's request. Dunder does not investigate further. Six months later, regulatory authorities sanction BT for manipulating micro-cap stock prices at month end in order to boost account values. Did Dunder violate any CFA Institute Standards of Professional Conduct?
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The Global Investment Performance Standards leastlikely require:
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Jefferson Piedmont, CFA, a portfolio manager for Park Investments, plans to manage the portfolios of several family members in exchange for a percentage of each portfolio's profits. Because his family members have extensive portfolios requiring substantial attention, they have requested that Piedmont provide the services outside of his employment with Park. Piedmont notifies his employer in writing of his prospective outside employment. Two weeks later, Piedmont begins managing the family members' portfolios. By managing these portfolios, which of the following CFA Institute Standards of Professional Conduct has Piedmont violated?
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Monte Carlo simulation is best described as:
-
The belief that trends and patterns tend to repeat themselves and are, therefore, somewhat predictable best describes:
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Which of the following most accurately describes a distribution that is more peaked than normal?
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Using the following sample results drawn as 25 paired observations fTom their underlying distribution s, test whether the m ean retu rns of the two porte'olios differ from each other at the 1% level of statistical significance. Assume th e underlying distributions of returns for each portfolio are normal and that their population variances are not known.
Based on the paired comparisons test of the two portfolios, the most appropriate conclusion is that HL should be:
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The null hypothesis is most likely to be rejected when the p-value of the test statistic:
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Over the past four years, a portfolio experienced returns of -8%,4%,17%, and -12%. The geometric mean return of the portfolio over the four-year period is closest to:
-
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Based on historical returns, a portfolio has a Sharpe ratio of 2.0. If the mean return to the portfolio is 20%, and the mean return to a risk-free asset is 4%, the standard deviation of return on the portfolio is closest to:
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The following 10 observations are a sample drawn from an approximately normal population
The sample standard deviation is closestto:
-
The following ten observations are a sample drawn from an approximately nomlal population:
The sample standard deviation is closest to:
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The minimum rate of return an investor must receive in order to accept an investment is best described as the:
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Which of the following most accurately describes how to standardize a random variable X?
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A descriptive measure of a population characteristic is best described as a:
-
In generating an estimate of a population parameter, a larger sample size is most likely to improve the estimator's:
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The probability of Event A is 40%. The probability of Event B is 60%. The joint probability of AB is 40%. The probability (P) that A or B occurs, or both occur, is closestto:
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Which of the following statements with respect to Giffen and Veblen goods is least accurate?
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The aggregate demand and supply functions for the local market for pizza, along with some relevant data, is provided in the following table.
The number of units of excess demand for pizza is closest to:
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A consumer has a budget of $30 per month to spend on two types of fruit, priced as follows:
·Apples: $2.50 per pound.
·Bananas: $2.00 per pound.
Assuming the quantity of apples is measured on the vertical axis and bananas on the horizontal axis, the slope of the budget constraint is closest to:
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Which of the following statements most accurately describes a valuation allowance for deferred taxes? A valuation allowance is required under:
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The following information applies to a start-up company solely owned by an entrepreneur.
The company's economic profit is closest to:
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The diagram to the below illustrates a consumer's allocation of her budget between items X and Y. With an initial budget (BC1) she consumes Qa units of item Y. When the price of Y drops, she consumes Qc units of item Y. Lines BC2 and BC3 are parallel to one another.
The income effect arising from this change in the price of Y is best described as the distance between:
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Which of the followinq is most likely to cause a shift to the riqht in the aqqreqate demand curve?
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The price of a good falls from $15 to $13. Given this decline in price, the quantity demanded of the good rises from 100 units to 120 units. The arc price elasticity of demand for the good is closest to:
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If the quantity demanded of pears falls by 4% when the price of apples decreases by 3%, then apples and pears are best described as:
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Three firms operate under perfect competition, producing 900 units of the same product but using different production technologies. Each company's cost structure is indicated in the table:
Which of the following statements is most accurate? If the unit selling price is:
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The following international trade information is available for a hypothetical economy:
Following a 12% depreciation in the DCU, the trade balance will be closestto:
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An expansionary fiscal policy is most likely associated with:
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The convergence of global accounting standards has advanced to a degree that the Securities & Exchange Commission in the United States now mandates that foreign private issuers who use IFRS may report under:
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Which of the following statements is most accurate about the responsibilities of an auditor for a publicly traded firm in the United States? The auditor must:
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At the stag of the year, a company acquired new equipment at a cost of €50,000, estimated to have a three-year life and a residual value of €5,000. If the company depreciates the asset using the double declining balance method, the depreciation expense that the company will report for the third year is closest to:
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In a period of rising prices, when compared with a company that uses weighted average cost for inventory, a company using FIFO will most likely report higher values for its:
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The following data is available on a company:
Under a common-size analysis, the value used for research & development expenses is closestto:
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Which of the following statements is most accurate?
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A company that prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) uses the revaluation model to value land. At the end of the current year, the value of land, newly acquired this year, has increased and will be adjusted on the balance sheet.
This land is the only asset in its asset class for revaluation purposes. Which of the following statements is most accurate? In the current period, the revaluation of the land will:
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A company purchased a warehouse for €35 million and incurred the following additional costs in getting the warehouse ready to use:
·€2.0 million for repairs to the building's roof and windows
·€0.5 million to modify the interior layout to meet their needs (moving walls and doors, inserting and removing partitions, etc.)
·€0.1 million on an orientation and training session for employees to familiarize them with the facility The cost to be capitalized to the building account (in millions) is closestto:
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Notes to financial statements most likely include:
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At the beginning of the year, a company purchased a fixed asset for $500,000 with no expected residual value. The company depreciates similar assets on a straight line basis over 10 years, whereas the tax authorities allow declining balance depreciation at the rate of 15% per year. In both cases, the company takes a full year's depreciation in the first year and the tax rate is 40%. Which of the following statements concerning this asset at the end of the year is most accurate?
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The following data is available on a company for the current year:
The company will most likely report other comprehensive income (OCI) (in ￡'000) as a:
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A company that prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) is attempting to produce lighter and longer-lasting batteries for portable electronic devices. The most appropriate accounting treatment for the related costs incurred in this project is to:
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A company incurs the following costs related to its inventory during the year:
The amount charged to inventory cost (in millions) is closestto:
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An analyst has compiled the following information on a company:
The amount of dividends declared (￡thousands) during the year is closest to:
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Interim reports most likely:
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At the start of a month, a retailer paid $5,000 in cash for candies. He sold $2,000 worth of candies for $3,000 during the month. The most likely effect of these transactions on the retailer's accounting equation for the month is that assets will:
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The use of estimates in financial reporting is best described as:
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Which of the following statements is most accurate with respect to the jurisdiction underlying financial reporting?
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The following information is available on a company for the current year.
The company's diluted EPS is closestto:
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Which of the following statements best describes a trial balance? A trial balance is a document or computer file that:
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The following information is available for a manufacturing company:
If the company is using International Financial Reporting Standards (IFRS) instead of US GAAP, its cost of goods sold (in millions) is most likely:
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The least likely reason that a security analyst needs to understand the accounting process is to:
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Which of the following reports is least likely to be filed with the US SEC?
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According to the International Financial Reporting Standards (IFRS), which of the following conditions should be satisfied to report revenue from the sale of goods on the income statement?
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A company's $100 par value preferred stock with a dividend rate of 9.5% per year is currently priced at $103.26 per share. The company's earnings are expected to grow at an annual rate of 5% for the foreseeable future. The cost of the company's preferred stock is closest to:
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The degree of operating leverage (DOL) is closest to
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A 20-year $1,000 fixed-rate non callable bond with 8% annual coupons currently sells for $1105.94 Assuming a 3O% marginal tax rate and an additional n sk premium for equity relative to debt of 5% the cost of equity using the bond-yield-plus-risk premium approach is closest to
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Which of the following is most likely considered an example of matrix pricing when determining the cost of debt?
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A company's data are provided in the following table:
The weighted average cost of capital(WACC) is closest to:
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Which action is most likely considered a secondary source of liquidity?
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The following information is available for a firm:
The firm's degree of total leverage (DTL) is closest to:
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Business risk most likely incorporates operating risk and:
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A trader who owns shares of a stock currently trading at $100 per share places a "GTC, stop $90, limit $85 sell" order (GTC means good till cancelled). Assuming the specified stop condition is satisfied and the order becomes executed, which of the following statements is most accurate?
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A Japanese exporter will sell U.S. dollars for Japanese Yen in the quote-driven currency markets. Which of the following statements best describes her currency exchange transactions?
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A market index contains the following two securities:
The total return on an equal-weighted basis is closestto:
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The advantages to an investor owning convertible preference shares of a company most likely include:
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The index weighting that results in portfolio weights shifting away from securities that have increased in relative value toward securities that have fallen in relative value whenever the portfolio is rebalanced is most accurately described as:
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An industry experiencing slow growth, high prices, and volumes insufficient to achieve economies of scale is most likely in the:
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Which of the following financial intermediaries is most likely to provide liquidity service to its clients?
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The behavioral bias in which investors tend to avoid realizing losses but rather seek to realize gains is best described as:
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An investor buys a stock on margin and holds the position for one year.
Assuming that the interest on the loan and the dividend are both paid at the end of the year, the price at which the investor sold the stock is closest to:
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Which of the following statements concerning the objectives of market regulation is least accurate? Regulators:
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An observation that stocks with above average price-to-earnings ratios have consistently underperformed those with below average price-to-earnings ratios least likely contradicts which form of market efficiency?
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Which of the following statements concerning financial regulatory bodies is least accurate? Financial regulatory bodies:
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A long-term bond investor with an investment horizon of 8 years invests in option-free, fixed-rate bonds with a Macaulay duration of 10.5. The investor most likely currently has a:
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In a repurchase agreement, the repo margin will be lower the:
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The type of residential mortgage least likely to contain a "balloon" payment is a(n):
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A two-year spot rate of 5% is most likely the:
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Given two otherwise identical bonds, when interest rates rise, the price of Bond A declines more than the price of Bond B. Compared with Bond B, Bond A most likely:
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Credit spreads are most Iikelyto narrow during:
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If a bank wants the ability to retire debt prior to maturity in order to take advantage of lower borrowing rates, it most likely issues a:
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Which of the following bonds is most likely to trade at a lower price relative to an otherwise identical option-free bond?
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Which of the following is least likely a short-term funding method available to banks?
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Which of the following is least likely to be a type of embedded option in a bond issue granted to bondholders?
The right to:
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The option-free bonds issued by ALS Corp. are currently priced at 108.50.Based on a portfolio manager's valuation model,a 1bp increase in interest rates will result in the bond price falling to108.40,Whereas a 1bp decrease in interest rates will result in the bond price rising to 108.59.The price value of a basis point(PVBP)for the bonds is closest to:
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Holding all other characteristics the same, the bond exposede to the greatest level of reinvestment risk is most likely the one selling at:
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Convenience yield is best described as a nonmonetary benefit of holding a(n):
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For a forward contract with a value of zero, a situation where the spot price is above the forward price is best explained by high:
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An investor purchases 100 shares of common stock at €50 each and simultaneously sells call options on 100 shares of the stock with a strike price of €55 at a premium of €l per option. At the expiration date of the options, the share price is €58. The investor's profit is closest to:
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According to put-call parity, if a fiduciary call expires in the money, the payoff is most likely equal to the:
-
A high convenience yield is most likely associated with holding:
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Which of the following statements best describes changes in the value of a long forward position during its life?
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The following information is available about a hedge fund:
No deposits to the fund or withdrawals from the fund occurred during the year. Management fees are calculated using end-of-period valuation. Management fees and incentive fees are calculated independently. The net-of-fees return of the investor is closest to:
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The real estate index most likelyto suffer from sample selection bias is a(n):
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Which of the following investments most likely provides an investor with indirect equity exposure to real estate?
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Which attribute would a private equity firm most likely desire when deciding if a company is particularly attractive as a leveraged buyout target?
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The stock of GBK Corporation has a beta of 0.65. If the risk-free rate of return is 3% and the expected market return is 9%, the expected return for GBK is closestto:
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The point of tangency between the capital allocation line (CAL) and the efficient frontier of risky assets most likely identifies the:
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Which of the following performance measures most likely relies on systematic risk as opposed to total risk when calculating a risk-adjusted return?
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A portfolio manager generated a rate of return of 15.5% on a portfolio with beta of 1.2. If the risk-free rate of return is 2.5% and the market return is 11.8%, Jensen's alpha for the portfolio is closest to:
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A return-generating model that provides an estimate of the expected return of a security based on such factors as earnings growth and cash flow generation is best described as a:
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The correlation between the historical returns of Stock A and Stock B is 0.75. If the variance of Stock A is 0.16 and the variance of Stock B is 0.09, the covariance of returns of Stock A and Stock B is closest to:
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Which of the following is least likely a part of the execution step of the portfolio management process?
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Condider a portfolio with two assets. Asset A compnses 25% of the portfolio and has a standard deviation of 17.9%. Asset B comprises 75% of the portfolio and has a standerd deviation of 6.2%.If the correlation of these two investments is 0.5,the portfolio standard deviation is closest to:
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An asset management firm generated the following annual retums in their US large-cap equity portfolio:
The 2012 return needed to achieve a tuailing five-year feometric mean annualized return of 5% when calculate at the end of 2012 is close st to:
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Linda Chin, CFA, is a member of a political group advocating less governmental regulation in all aspects of life. She works in a country where local securities laws are minimal and insider trading isnot prohibited. Chin's politics are reflected in her investment strategy, where she follows hercountry's mandatory legal and regulatory requirements. Which of the following actions by Chin wouldbe most consistent with the CFA Institute Standards of Professional Conduct?
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Colleen O'Neil, CFA, manages a private investment fund with a balanced global investmentmandate. Her clients insist that her personal investment portfolio replicate the investments withintheir portfolios to assure them she is willing to put her own money at risk. By undertaking which ofthe following simultaneous investment actions for her own portfolio would O'Neil most likely be inviolation of Standard VI(B): Priority of Transactions?
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Millicent Plain has just finished taking Level II of the CFA examination. Upon leaving the examinationsite, she meets with four Level III candidates who also just sat for their exams. Curious about their examination experience, Plain asks the candidates how difficult the Level III exam was and how theydid on it. The candidates say the essay portion of the examination was much harder than they had expected and that they were not able to complete all questions as a result. The candidates go on totell Plain about broad topic areas that were tested and complain about specific formulas they hadmemorized that did not appear on the exam. The Level III candidates least likely violated the CFAInstitute Standards of Professional Conduct by discussing:
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Heidi Halvorson, CFA, is the chief investment officer for Tukwila Investors, an asset managementfirm specializing in fixed-income investments. Tukwila is in danger of losing one of its largest clients,Quinault Jewelers, which accounts for nearly one-third of its revenues. Quinault recently told Halverson that Tukwila would be fired unless the performance of Quinault's portfolio improvessignificantly. Shortly after this conversation, Halvorson purchases two corporate bonds she believesare suitable for any of her clients based on third-party research from a reliable and diligent source.Immediately after the purchase, one bond increases significantly in price while the other bonddeclines significantly. At the end of the day, Halvorson allocates the profitable bond trade to Quinaultand the other bond to two of her largest institutional accounts. Halvorson most likely violated the CFA Institute Standards of Professional Conduct in regard to:
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Jack Steyn, CFA, recently became the head of the trading desk at a large investment managementfirm that specializes in domestic equities. While reviewing the firm's trading operations, he notices clients give discretion to the manager to select brokers on the basis of their overall services to themanagement firm. Despite the client directive, Steyn would most likely violate Standard Ill(A): Loyalty, Prudence, and Care if he pays soft commissions for which of the following services from thebrokers?
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Based on his superior return history, Vijay Gupta, CFA, is interviewed by the First Faithful Church tomanage the church's voluntary retirement plan's equity portfolio. Each church staff member chooseswhether to opt in or out of the retirement plan according to his or her own investment objectives. Theplan trustees tell Gupta that stocks of companies involved in the sale of alcohol, tobacco, gambling,or firearms are not acceptable investments given the objectives and constraints of the portfolio. Gupta tells the trustees he cannot reasonably execute his strategy with these restrictions and that allhis other accounts hold shares of companies involved in these businesses because he believes theyhave the highest alphA. By agreeing to manage the account according to the trustees' wishes, doesGupta violate the CFA Institute Standards of Professional Conduct?
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Jorge Lopez, CFA, is responsible for proxy voting on behalf of his bank's asset management clients. Lopez recently performed a cost-benefit analysis that showed the proxy-voting policies might notbenefit the bank's clients. As a result, Lopez immediately changes the proxy-voting policies and procedures without informing anyone. Lopez now votes client proxies on the side of management onall issues, with the exception of major mergers in which a significant impact on the stock price is expected. Lopez least likely violated the CFA Institute Standards of Professional Conduct in regard to:
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Chris Rodriguez, CFA, is a portfolio manager at Nisqually Asset Management, which specializes intrading highly illiquid shares. Rodriguez has been using Hon Securities Brokers almost exclusivelywhen making transactions for Nisqually clients, as well as for his own relatively small account. Honalways executes Rodriguez's personal trades at a more preferential price than for Rodriguez's clients' accounts. This special pricing occurs regardless of whether or not Rodriguez personallytrades before or after clients. Rodriguez should least likely do which of the following in order tocomply with the CFA Institute Standards of Professional Conduct?
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When Abdullah Younis, CFA, was hired as a portfolio manager at an asset management firm two years ago, he was told he could allocate his work hours as he saw fit. At that time, Younis served onthe board of three non-public golf equipment companies and managed a pooled investment fund forseveral members of his immediate family. Younis was not compensated for his board service or formanaging the pooled fund. Younis's investment returns attract interest from friends and co-workerswho persuade him to include their assets in his investment pool. Younis recently retired from all board responsibilities and now spends more than 80% of his time managing the investment pool forwhich he charges non-family members a management fee. Younis has never told his employer about any of these activities. To comply with the CFA Institute Standards of Professional Conduct with regard to his business activities over the past two years, Younis would least likely be required todisclose which of the following to his employer?
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Tamlorn Mager, CFA, is an analyst at Pyallup Portfolio Management. CFA Institute recently notifiedMager that his CFA Institute membership was suspended for a year because he violated the CFA Institute Code of Ethics. A hearing panel also came to the same conclusion. Mager subsequently notified CFA Institute that he does not accept the sanction or the hearing panel's conclusion. Whichof the following actions by Mager would be most consistent with the CFA Institute Professional Conduct Program?
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Elbie Botha, CFA, an equity research analyst at an investment bank, disagrees with her research
team's buy recommendation for a particular company's rights issue. She acknowledges the team'srecommendation is based on a well-developed process and extensive research, but she feels thevaluation is overpriced based on her assumptions. Despite her contrarian view, her name is included on the research report to be distributed to all of the investment bank's clients. To avoid violating anyCFA Institute Standards of Professional Conduct, it would be least appropriate for Botha to undertake which of the following?
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Thomas Turkman recently hired Georgia Viggen, CFA, as a portfolio manager for North South Bank. Although Viggen worked many years for a competitor, West Star Bank, the move was straightforward because she did not have a non-compete agreement with her previous employer.Once Viggen starts working for Turkman, the first thing she does is bring to her new employer a trading software package she developed and used at West Star. Using public information, Viggencontacts all of her former clients to convince them to move with her to North South. Viggen also convinces one of the analysts she worked with at West Star to join her at her new employer. Viggenmost likely violated the CFA Institute Standards of Professional Conduct concerning her actions involving:
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Lisa Hajak, CFA, specialized in research on real estate companies at Cornerstone Country Bank for20 years. Hajak recently started her own investment research firm, Hajak Investment Advisory. Oneof her former clients at Cornerstone asks Hajak to update a research report she wrote on a real estate company when she was at Cornerstone. Hajak updates the report, which she had copied toher personal computer without the bank's knowledge, and replaces references to the bank with hernew firm, Hajak Investment Advisory. Hajak also incorporates the conclusions of a real estate studyconducted by the Realtors Association that appeared in the Wall Street Journal. She cites the WallStreet Journal as her source in her report. She provides the revised report free of charge along with acover letter for the bank's client to become a client of her firm. Concerning the reissued research report, Hajak least likely violated the CFA Institute Standards of Professional Conduct because she:
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Henrietta Huerta, CFA, writes a weekly investment newsletter to market her services and obtain new asset management clients. A third party distributes the free newsletter on her behalf to those individuals on its mailing list. As a result, it is widely read by thousands of individual investors. Thenewsletter recommendations reflect most of Huerta's investment actions. After completing furtherresearch on East-West Coffee Roasters, Huerta decides to change her initial buy recommendationto a sell. To avoid violating the CFA Institute Standards of Professional Conduct, it would be mostappropriate for Huerta to distribute the new investment recommendation to:
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Suni Kioshi, CFA, is an analyst at Pacific Asset Management, where she covers small-capitalizationcompanies. On her own time, Kioshi often speculates in low-price thinly traded stocks for her own account. Over the last three months, Kioshi has purchased 50,000 shares of Basic Biofuels Company, giving her a 5% ownership stake. A week after this purchase, Kioshi is asked to write a report on stocks in the biofuels industry, with a request to complete the report within two days. Kioshiwants to rate Basic Biofuels as a buy in this report but is uncertain how to proceed. Concerning the research report, what action should Kioshi most likely take to prevent violating any of the CFAInstitute Standards of Professional Conduct?
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Edo Ronde, CFA, an analyst for a hedge fund, One World Investments, is attending a key industryconference for the microelectronics industry. At lunch in a restaurant adjacent to the conference venue, Ronde sits next to a table of conference attendees and is able to read their nametags. Ronderealizes the group includes the president of a publicly traded company in the microelectronics industry, Fulda Manufacturing, a company Ronde follows. Ronde overhears the president complainabout a production delay problem Fulda's factories are experiencing. The president mentions thatthe delay will reduce Fulda's earnings by more than 20% during the next year if not solved. Ronderelays this information to the portfolio manager he reports to at One World explaining that in a recent research report he recommended Fulda as a buy. The manager asks Ronde to write up a negativereport on Fulda so the fund can sell the stock. According to the CFA Institute Standards of Professional Conduct, Ronde should least likely:
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Victoria Christchurch, CFA, is a management consultant currently working with a financial servicesfirm interested in curtailing its high staff turnover, particularly among CFA charterholders. In recentmonths, the company lost 5 of its 10 most senior managers, all of whom have cited systemic unethical business practices as the reason for their leaving. To curtail staff turnover by encouraging ethical behavior, it would be least appropriate for Christchurch to recommend the company do whichof the following?
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Dilshan Kumar, CFA, is a world-renowned mining analyst based in London. Recently, he received aninvitation from Cerberus Mining, a company listed on the London Stock Exchange with headquartersin Johannesburg, South AfricA. Cerberus asked Kumar to join a group of prominent analysts from around the world on a tour of its mines in South Africa, some of which are in remote locations andnot easily accessible. The invitation also includes an arranged wildlife safari to Krueger NationalPark for the analysts. Kumar accepts the invitation, planning to visit other mining companies hecovers in Namibia and Botswana after the safari. To prevent violating any CFA Institute Standards of Professional Conduct, it is most appropriate for Kumar to only accept which type of paid travelarrangements from Cerberus?
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Which method of calculating the firm's cost of equity is most likely to incorporate the long-run return relationship between the firm's stock and the market portfolio?
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A project has the following annual cash flows:
Which of the following discount rates most likely produces the highest net present value (NPV)?
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Which action is most likely considered a secondary source of liquidity?
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Financial risk is least likely affected by:
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Which of the following is the least appropriate method for an external analyst to use to estimate acompany's target capital structure for determining the weighted average cost of capital (WACC)?
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Based on best practices in corporate governance procedures, it is most appropriate for a company's compensation committee to:
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Other factors held constant, the reduction of a company's average accounts payable because of suppliers offering less trade credit will most likely:
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Assume a 365-day year and the following information for a company:
The firm's days of payables for the current year is closest to:
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Which of the following statements is the most appropriate treatment of flotation costs for capital budgeting purposes? Flotation costs should be:
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A small country has a comparative advantage in the production of pencils. The government establishes an export subsidy for pencils to promote economic growth. Which of the following will bethe most likely result of this policy?
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The following data are for a basket of three consumption goods used to measure the rate of inflation:
Using the consumption basket for the current year, the Paasche Index is closest to:
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A country having a current account deficit most likely will still be able to consume more output than it produces by:
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In an effort to influence the economy, a central bank conducted open market activities by selling government bonds. This action implies that the central bank is most likely attempting to:
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Which of the following government interventions in market forces is most likely to cause overproduction?
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An expansionary fiscal policy is most likely associated with:
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Which of the following would be most useful as a leading indicator to signal the start of an economic recovery?
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A household has a total monthly budget of $110 to spend on chicken and lamB. Per kilogram, the price of chicken is $7.50 and the price of lamb is $10. The quantity of chicken consumed is 35% lessthan that for lamB. The quantity of chicken (in kilograms) consumed by the household in a month is closest to:
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According to the Fisher effect, an increase in expected inflation will most likely increase:
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The price of a good falls from $15 to $13. Given this decline in price, the quantity demanded of thegood rises from 100 units to 120 units. The arc price elasticity of demand for the good is closest to:
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Which of the following statements concerning the HerfindahI-Hirschman Index (HHI) is most accurate?
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The following diagram illustrates a market that had been in equilibrium at (PE, QE) prior to the imposition of a price ceiling, PC. The deadweight loss that arises because of this market interventionis best described bv the area defined by:
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By themselves, financial ratios are least likely to be sufficient in determining a company's:
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Unused tax losses and credits that a company expects to use in future periods will most likely give rise to:
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The following information about a company is provided:
Total liabilities (in $ thousands) at the end of the year are closest to:
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A company that prepares its financial statements in accordance with IFRS incurred and capitalized€2 million of development costs during the year. These costs were fully deductible immediately fortax purposes, but the company is depreciating them over two years for financial reporting purposes. The company has a long history of profitability, which is expected to continue. Which is the most appropriate way for an analyst to incorporate the differential tax treatment in his analysis? He should include it in:
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The following information is available from a company's current financial data, prepared according to US GAAP:
The pension expense (in $ thousands) reported in the current year is closest to:
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A company purchased equipment for $50,000 on 1 January 2011. It is depreciating the equipmentover a period of 10 years on a straight-line basis for accounting purposes, but for tax purposes it isusing the declining balance method at a rate of 20%. Given a tax rate of 30%, the deferred tax liability at the end of 2013 is closest to:
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Under the IFRS Framework for the Preparation and Presentation of Financial Statements, it is most appropriate to recognize a financial statement element in the financial statements if it:
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Compared with classifying a lease as a financing lease, if a lessee reports the lease as an operating lease, it will most likely result in:
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At the beginning of the year, a company had total shareholders' equity consisting of ￥200 million in common share capital and ~50 million in retained earnings.
During the vear, the following events occurred:
The total shareholders' equity (in ￥ millions) at the end of the year is closest to:
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Which of the following statements is most accurate?
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A company that prepares its financial statements according to IFRS owns several investment properties on which it earns rental income. It values the properties using the fair value model basedon prevailing rental markets. After two years of increases, the market softened in 2014 and valuesdecreased. A summary of the properties' valuations follows:
Which of the following best describes the impact of the revaluation on the 2014 financial statements?
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Using the following information, a Mexican corporation is computing the depreciation expense for apiece of manufacturing equipment that it purchased at the start of the current year. The company takes a full year's depreciation in the year of acquisition.
The depreciation expense (in MXN) will most likely be higher by:
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A company suffered a substantial loss when its production facility was destroyed in an earthquakeagainst which it was not insured. Geological scientists were surprised by the earthquake becausethere was no evidence that one had ever occurred in that area in the past. Which of the followingstatements is most accurate? The company should report the loss on its income statement:
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A Canadian printing company that prepares its financial statements according to IFRS has
experienced a decline in the demand for its products. The following information (in Canadian dollars)relates to the company's printing equipment as of the current fiscal year end:
The impairment loss (in C$) is closest to:
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If a non-financial company securitizes its accounts receivable for less than their book value, the most likely effect on the financial statements is to increase:
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Updated information on a company's performance and financial position since the last annual report is most likely found in:
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An analyst has calculated the following ratios for a company:
The company's return on equity (ROE) is closest to:
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During 2013, the following events occurred at a company:
Based on those events, the amortization expense that the company should report in 2014 is closest to:
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An analyst has gathered the following information about a company:
The cash flow debt coverage ratio for the year is closest to:
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The following financial information is available at the end of the year.
The diluted EPS (earnings per share) is closest to:
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A company that prepares its financial statements in accordance with IFRS issues ￡5,000,000 facevalue 10-year bonds on 1 January 2013 when market interest rates for such bonds are 5.50%. Thebonds carry a coupon of 6.50%, with interest paid annually on 31 December. The carrying value ofthe bonds as of 31 December 2014 will be closest to:
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Interest payable decreased during a company's fiscal year. Compared with the amount of cash interest payments made, interest expense is most likely:
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A company has operated at full capacity throughout the year, and a review of its inventory records for that period indicate that the following costs were incurred:
The total capitalized costs to inventory during the year are closest to:
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A company's balance sheet at the end of the year shows the following:
The company's quick ratio is closest to:
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An investor purchases one share of stock for $85. Exactly one year later, the company pays a dividend of $2.00 per share. This is followed by two more annual dividends of $2.25 and $2.75 insuccessive years. Upon receiving the third dividend, the investor sells the share for $100. The money-weighted rate of return on this investment is closest to:
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An individual wants to be able to spend €80,000 per year for an anticipated 25 years in retirement.To fund this retirement account, he will make annual deposits of €6,608 at the end of each of his working years. He can earn 6% compounded annually on all investments. The minimum number ofdeposits that are needed to reach his retirement goal is closest to:
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Equity return distributions are best described as being:
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For a positively skewed unimodal distribution, which of the following measures is most accurately described as the largest?
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If the distribution of the population from which samples of size n are drawn is positively skewed and given that the sample size, n, is large, the sampling distribution of the sample means is most likely tohave a:
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The arithmetic and geometric mean are calculated for the same datA. If there is variability in the data, compared with the arithmetic mean, the geometric mean will most likely be:
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The following 10 observations are a sample drawn from a normal population: 25,20,18, -5,35,21,-11,8,20, and 9. The fourth quintile (80th percentile) of the sample is closest to:
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A fund manager would like to estimate the probability of a daily loss higher than 5% on the fund he manages. He decides to use a method that uses the relative frequency of occurrence based onhistorical datA. The resulting probability is best described as a(n):
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In generating an estimate of a population parameter, a larger sample size is most likely to improve the estimator's:
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The following is an excerpt from the cumulative distribution function for the standard normal random variable table:
A variable is normally distributed with a mean of 2.00 and a variance of 16.00. Using the excerpt, the probability of observing a value of 7.40 or less is closest to:
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Which of the following is the least likely characteristic of the normal probability distribution? The normal probability distribution:
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A financial contract offers to pay (:1,200 per month for five years with the first payment made immediately. Assuming an annual discount rate of 6.5%, compounded monthly the present value ofthe contract is closest to:
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The probability of Event A is 40%. The probability of Event B is 60%. The joint probability of AB is 40%. The probability (P) that A or B occurs, or both occur, is closest to:
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The following information is available on three portfolios:
The risk-free rate is 4%. The portfolio that has the best risk-adjusted performance as measured by the Sharpe ratio is:
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The three main sources of return for commodities futures contracts most likely are:
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The value at risk of an alternative investment is best described as the:
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Investors in alternative assets who seek liquidity are most likely to invest in:
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The intrinsic value of an option is always zero:
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An investor has purchased a share of stock for $190. A call option on this stock, expiring in seven months and with an exercise price of $200, is priced at $11.40. If the investor enters into a coveredcall now, the profit on this strategy if the stock price at expiration is $215 is closest to:
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A forward rate agreement (FRA) that expires in 180 days and is based on 90-day LIBOR is quoted at 2.2%. At expiration of the FRA,90-day LIBOR is 2.8%. For a notional principal of $1,000,000, thepayoff of this FRA is closest to:
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A corporation issues five-year fixed-rate bonds. Its treasurer expects interest rates to decline for allmaturities for at least the next year. She enters into a one-year agreement with a bank to receive quarterly fixed-rate payments and to make payments based on floating rates benchmarked on three-month LIBOR. This agreement is best described as a:
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When purchasing a futures contract, the initial margin requirement is best described as the:
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Two parties agree to a forward contract on a non-dividend-paying stock at a price of $103.00. At contract expiration, the stock trades at $105.00. In a cash-settled forward contract, the:
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The financial systems that are operationally efficient are most likely characterized by:
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A market has the following limit orders standing on its book for a )articular stock:
If a trader submits an immediate-or-cancel limit buy order for 700 shares at a price of $20.50, the average price the trader would pay is closest to:
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The following data pertain to a company that can be appropriately valued using the Gordon growth model. The dividend is expected to grow indefinitely at the existing sustainable growth rate.
The stock's intrinsic value is closest to:
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The following information is available about a company:
The current value per share of the company's common stock according to the two-stage dividend discount model is closest to:
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A fund manager gathers the following data to assess a stock's potential for a possible addition to her portfolio:
Which of the following is the most appropriate decision for the fund manager?
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Returns from a depository receipt are least likely affected by which of the following factors?
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A stop-buy order is most likely placed when a trader:
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The advantages to an investor owning convertible preference shares of a company most likely include:
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An investor who wants to estimate the enterprise value multiple (EV/EBITDA) of a company has gathered the following data:
The company's EV/EBITDA multiple is closest to:
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The index weighting that results in portfolio weights shifting away from securities that have increased in relative value toward securities that have fallen in relative value whenever the portfolio isrebalanced is most accurately described as:
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A fund mananaer compiles the followincg data on two companies:
The best conclusion the fund manager can make is that Company A's stock is more attractive than Company B's stock because of its:
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Which of the following statements is most accurate with respect to rebalancing and reconstitution of security market indices?
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Which of the following bonds is most likely to trade at a lower price relative to an otherwise identical option-free bond?
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If the yield-to-maturity on an annual-pay bond is 7.75%, the bond-equivalent yield is closest to:
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Compared with an otherwise identical option-free bond, when interest rates fall, the price of a callable bond will:
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A two-year spot rate of 5% is most likely the:
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Credit spreads are most likely to narrow during:
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An investor is least likely exposed to reinvestment risk from owning a(n):
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Which bonds most likely rank the highest with respect to priority of claims?
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The duration and convexity of an option-free bond priced at $90.25 are 10.34 and 151.60,respectively. If yields increase by 200 bps, the percentage change of the price is closest to:
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A fixed-income security's current price is $101.45. The manager estimates that the price will riseto $103.28 if interest rates decrease 0.25% or fall to $100.81 if interest rates increase 0.25%. Thesecurity's effective duration is closest to:
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The market value of an 18-year zero-coupon bond with a maturity value of $1,000 discounted at a 12% annual interest rate with semi-annual compounding is closest to:
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Using the “Four Cs of Credit Analysis” framework, which of the following is the least likely factor to be considered under the category of “capacity”?
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A bond with a par value of $100 matures in 10 years with a coupon of 4.5% paid semiannually; it is priced to yield 5.83% and has a modified duration of 7.81. If the yield of the bond declines by0.25%, the approximate percentage price change for the bond is closest to:
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One limitation as to why using the average duration of the bonds in a portfolio does not properly reflect that portfolio's yield curve risk is that the approach assumes:
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Consider two bonds that are identical except for their coupon rates. The bond that will have the highest interest rate risk most likely has the:
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All else being equal, the difference between the nominal spread and the Z-spread for a non-Treasury security will most likely be larger when the:
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Which of the following is most likely associated with an investor's ability to take risk rather than the investor's willingness to take risk?
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A portfolio manager decides to temporarily invest more of a portfolio in equities than the investment policy statement prescribes because he expects equities will generate a higher returnthan other asset classes. This decision is most likely an example of:
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A portfolio with equal parts invested in a risk-free asset and a risky portfolio will most likely lie on:
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The correlation between the historical returns of Stock A and Stock B is 0.75. If the variance of Stock A is 0.16 and the variance of Stock B is 0.09, the covariance of returns of Stock A and Stock B is closest to:
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Which of the following is least likely an assumption of the capital asset pricing model (CAPM)?
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The point of tangency between the capital allocation line (CAL) and the efficient frontier of risky assets most likely identifies the:
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The stock of GBK Corporation has a beta of 0.65. If the risk-free rate of return is 3% and the expected market return is 9%, the expected return for GBK is closest to:
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Carlos Cruz, CFA, is one of two founders of an equity hedge fund. Cruz manages the fund's assets, and the other co-founder, Brian Burkeman, CFA, is responsible for fund sales and marketing. Cruz notices the most recent sales material used by Burkeman indicates assets under management are listed at a higher value than the current market value. Burkeman justifies the discrepancy by stating recent market declines account for the difference. To comply with the CFA Institute Standards of Professional Conduct, Cruz should least likely take which of the following actions?
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Christina Ng, a Level I CFA candidate, defaulted on a bank loan she obtained to pay for her master's degree tuition when her wedding cost more than expected. A micro finance loan company lent her money to pay off the tuition loan in full, including penalties and interest. The micro finance loan company even extended further credit to pay for her parents' outstanding medical bills. Unfortunately, her parents' health problems escalated to the point that Ng had to take extensive time away from work to deal with the issues. She was subsequently fired and consequently defaulted on the second loan. Because she was no longer employed, Ng decided to file for personal bankruptcy. Do the loan defaults leading up to Ng's bankruptcy most likely violate Standard Ⅰ(D): Misconduct?
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Kim Klausner, CFA, monitors several hundred employees as head of compliance for a large investment advisory firm. Klausner has always ensured that his company's compliance program met or exceeded those of its competitors. Klausner, who is going on a long vacation, has delegated his supervisory responsibilities to Sue Chang. Klausner informs Chang that her responsibilities include detecting and preventing violations of any capital market rules and regulations and the CFA Institute Standards of Professional Conduct. Klausner least likely violated the CFA Institute Standards of Professional Conduct by failing to instruct Chang to also consider:
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When a client asks her how she makes investment decisions, Petra Vogler, CFA, tells the client she uses mosaic theory. According to Vogler, the theory involves analyzing public and nonmaterial nonpublic information, including the evaluation of statements made to her by company insiders in one-on-one meetings in which management discusses new earnings projections not known to the public. Vogler also gathers general industry information from industry experts she has contacted. Vogler most likely violates the CFA Institute Standards of Professional Conduct because of her use of:
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Bailey Watson, CFA, manages 25 emerging market pension funds. He recently had the opportunity to buy 100,000 shares in a publicly listed company whose prospects are considered "above industry norm" by most analysts. The company's shares rarely trade because most managers use a buy-and- hold strategy because of the company's small free float. Before placing the order with his dealer, Watson allocated the shares to be purchased according to the weighted value of each of his clients' portfolios. When it came time to execute the trades, the dealer was able to purchase only 50,000 shares. To prevent violating Standard Ⅲ(B): Fair Dealing, it would be most appropriate for Watson to reallocate the 50,000 shares purchased by:
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Lin Liang, CFA, is an investment manager and an auto industry expert. Last month, Liang sent securities regulators an anonymous letter outlining various accounting irregularities at Road Rubber Company. Shortly before he sent the letter to the regulators, Liang shorted Road stock for his clients. Once the regulators opened an investigation, which Liang learned about from his sources inside the company, Liang leaked this information to multiple sources in the media. When news of the investigation became public, the share price of Road immediately dropped 30%. Liang then covered the short positions and made $5 per share for his clients. Liang least likely violated which of the CFA Institute Standards of Professional Conduct?
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Jennifer Ducumon, CFA, is a portfolio manager for high-net-worth individuals at Northeast Investment Bank. Northeast holds a large number of shares in Baby Skin Care Inc., a manufacturer of baby care products. Northeast obtained the Baby Skin Care shares when it underwrote the company's recent IPO. Ducumon has been asked by the investment banking department to recommend Baby Skin Care to her clients, who currently do not hold any shares of Baby Skin Care in their portfolios. Although Ducumon has a favorable opinion of Baby Skin Care, she does not consider the shares a buy at the IPO price or at current price levels. According to the CFA Institute Standards of Professional Conduct, the most appropriateaction for Ducumon is to:
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Rodney Rodrigues, CFA, is responsible for identifying professionals to manage specific asset classes for his firm. In selecting external advisers or sub advisers, Rodrigues reviews the adviser's investment process, established code of ethics, the quality of the published return information, and the compliance and integrated control framework of the organization. In completing his review, Rodrigues most likely violated the CFA Institute Standards of Professional Conduct with regard to his due diligence on:
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Solomon Sulzberg, CFA, is a research analyst at Blue Water Management. Sulzberg's recommendations typically go through a number of internal reviews before they are publishe d. In developing his recommendations, Sulzberg uses a model developed by a quantitative analyst within the firm. Sulzberg made some minor changes to the model but retained the primary framework. In his reports, Sulzberg attributes the model to both the quantitative analyst and himself. Before the internal reviews of his reports are completed, Sulzberg buys shares in one of the companies. After the internal review is complete, he fails to recommend the purchase of the stock to his clients and erases all of his research related to this company. Sulzberg least likely violated the CFA Institute Standards of Professional Conduct related to:
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Jackson Barnes, CFA, works for an insurance company providing financial planning services to clients for a fee. Barnes has developed a network of specialists--including accountants, lawyers, and brokers--who contribute their expertise to the financial planning process. Each of the specialists is an independent contractor. Each contractor bills Barnes separately for the work he or she performs, providing a discount based on the number of clients Barnes has referre d. What steps should Barnes take to be consistent with the CFA Institute Standards of Professional Conduct?
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On a flight to Europe, Romy Haas, CFA, strikes up a conversation with a fellow passenger, Vincent Trujillo. When Trujillo learns Haas is in the investment profession, he asks about the CFA designation. Haas tells him the following about the CFA designation:
Statement 1 : Individuals who have completed the CFA Program have the right to use the CFA designation.
Statement 2: The CFA designation is globally recognized, which is why it can be used as part of a firm's name.
Statement 3: CFA charterholders must satisfy membership requirements to continue using the designation.
In explaining the use of the CFA designation, Haas least likely violated the CFA Institute Standards of Professional Conduct concerning which of the following statements?
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Wouter Duyck, CFA, is the sole proprietor of an investment advisory firm serving several hundred middle-class retail clients. Duyck claims to be different from his competitors because he conducts research himself. He discloses that to simplify the management of all these accounts, he has created a recommended list of stocks from which he selects investments for all of his clients based on their suitability. Duyck's recommended list of stocks is obtained from his primary broker, who has completed due diligence on each stock. Duyck's recommended list least likely violates which of the following CFA Institute Standards of Professional Conduct?
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Abdul Naib, CFA, was recently asked by his employer to submit an updated document providing the history of his employment and qualifications. The existing document on file was submitted when he was hired five years ago. His employer notices the updated version shows Naib obtained his MBA two years ago, whereas the earlier version indicated he had already obtained his MBA at the time of his hire. Because the position Naib was hired for had a minimum qualification of an MBA, Naib is asked to explain the discrepancy. He justifies his actions by stating: "1 knew you would not hire me if I did not have an MBA, but I already had my CFA designation. Knowing you required an MBA, I went back to school on a part-time basis after I was hired to obtain it. I graduated at the top of my class, but this should not come as any surprise because you have seen evidence I passed all of my CFA exams on the first attempt." Did Naib most likely violate the CFA Institute Standards of Professional Conduct?
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Tonya Tucker, CFA, is a financial analyst at Bowron Consolidated. Bowron has numerous subsidiaries and is actively involved in mergers and acquisitions to expand its businesses. Tucker analyzes a number of companies, including Hanchin Corporation. When Tucker speaks with the CEO of Bowron, she indicates many of the companies she has looked at would be attractive acquisition targets for Bowron. After her discussion with the CEO, Tucker purchases 100,000 shares of Hanchin Corporation at $200 per share. Bowron does not have any pre-clearance procedures, so the next time she meets with the CEO, Tucker mentions she owns shares of Hanchin. The CEO thanks her for this information but does not ask for any details. Two weeks later, Tucker sees a companywide e-mail from the CEO announcing Bowron's acquisition of Hanchin for $250 a share. In regard to her purchase of Hanchin stock, Tucker least likely violated the CFA Institute Standards of Professional Conduct concerning:
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Kelly Amadon, CFA, an investment adviser, has two clients: Ryan Randolf,65 years old, and Keiko Kitagawa,45 years old. Both clients earn the same amount in salary. Randolf, however, has a large amount of assets, whereas Kitagawa has few assets outside her investment portfolio. Randolf is single and willing to invest a portion of his assets very aggressively; Kitagawa wants to achieve a steady rate of return with low volatility so she can pay for her child's current college expenses.
Amadon recommends investing 20% of both clients' portfolios in the stock of very low-yielding small- cap companies. Amadon least likely violated the CFA Institute Standards of Professional Conduct in regard to his investment recommendations for:
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Danielle Deschutes, CFA, is a portfolio manager who is part of a 10-person team that manages equity portfolios for institutional clients. A competing firm, South West Managers, asks Deschutes to interview for a position with its firm and to bring her performance history to the interview. Deschutes receives written permission from her current employer to bring the performance history of the stock portfolio with her. At the interview, she discloses that the performance numbers represent the work of her team and describes the role of each member. To bolster her credibility Deschutes also provides the names of institutional clients and related assets constituting the portfolio. During her interview, Deschutes most likely violated the CFA Institute Standards of Professional Conduct with regard to:
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Charles Mbuwanga, a Level Ⅲ CFA candidate, is the business development manager for Sokoza Investment Group, an investment management firm with high-net-worth retail clients throughout Africa. Sokoza introduced listed Kenyan REITs (real estate investment trusts) to its line of investment products based on new regulations introduced in Kenya to diversify its product offering to clients. The product introduction comes after months of researching Kenyan property correlations with other property markets and asset classes in Africa. Sokoza assigns Mbuwanga as part of the sales team that will introduce this product to its clients across Africa. Mbuwanga subsequently determines most of Sokoza's clients' portfolios would benefit from having a small Kenyan property exposure to help diversify their investment portfolios. By promoting the Kenyan REITs for Sokoza's client portfolios as planned, Mbuwanga would least likely violate which of the following standards?
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Sheila Schleif, CFA, is an equity analyst at an investment banking division of Mokara Financial Group, a full service financial group. Schleif uses a multifactor computer model to make stock recommendations for all clients of Mokara. Schleif discovers the model contains an error. If the error were corrected, her most recent buy recommendation communicated to all clients would change to a sell. Schleif corrects the error, changing the buy to a sell recommendation, and then simultaneously distributes via e-mail the revision to all investment banking clients who received the initial recommendation. A week later, Schleif sells the same shares she held in her personal portfolio. Concerning her actions, Schleif most likely violated which of the following CFA Institute Standards of Professional Conduct?
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A firm's estimated costs of debt, preferred stock, and common stock are 12%,17%, and 20%, respectively. Assuming equal funding from each source and a marginal tax rate of 40%, the weighted average cost of capital (WAAC) is closest to:
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The following information is available for a firm:
A plan to repurchase $10 million worth of shares using debt will most likely cause the earnings per share to:
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Which of the following is most likely a sign of a good corporate governance structure?
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A 20-year $1,000 fixed-rate non-callable bond with 8% annual coupons currently sells for $1,105.94. Assuming a 30% marginal tax rate and an additional risk premium for equity relative to debt of 5%, the cost of equity using the bond-yield-plus-risk-premium approach is closest to:
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A company's optimal capital budget most likely occurs at the intersection of the:
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When computing the weighted average cost of capital (WACC) and assuming a fixed-rate non- callable bond is currently selling above par value, the before-tax cost of debt is closest to the:
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A project has the following annual cash flows:
With a discount rate of 8%, the discounted payback period (in years) is closest to:
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Which date in the chronology of a dividend payment is most likely determined by a security exchange?
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When computing the cash flows for a capital project, which of the following is least likely to be included?
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The annual cost of trade credit assumig a 365-day year for terms 3/10 net 40 is closest to:
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Which of the following measures of profit is most likely necessary for a firm to stay in business in the long run?
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A country's international transactions accounts data for last year are presented in its domestic currency:
The current account balance is closest to:
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Which of the following will most likely cause the short-run aggregate supply (SRAS) curve to shift to the right?
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The two dominant supermarket chains in the area are attempting to increase their market share by moving to 24-hour service instead of closing at 9 p.m. every night. The strategic outcomes and payoff matrix that arise from their actions are depicted in the diagram (with the shaded sections
According to Nash equilibrium, the best strategy is for:
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In order to reduce a trade deficit, the government of a country experiencing full employment moves to depreciate its currency. As a result, if the country's domestic spending declines relative to income, the most likely mechanism that causes this to occur is the:
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A New Zealand traveler returned from Singapore with SGD7,500 (Singapore dollars). A foreign exchange dealer provided the traveler with the following quotes:
The amount of New Zealand dollars (NZD) that the traveler would receive for his Singapore dollars is closest to:
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Demand for a good is most likely to be more elastic when:
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Which characteristic is a firm least likely to exhibit when it operates in a market with a downward sloping demand curve, many competitors, and zero economic profits in the long run?
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Which of the following is most likely to cause a shift to the right in the aggregate demand curve?
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A local laundry and dry cleaner collects the following data on its workforce productivity. Workers always work in teams of two, and the laundry and dry cleaner earns $3.00 of revenue for each shirl laundered.
The marginal revenue product (MRP, $ per worker) for hiring the fifth and sixth workers is closest to:
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Holding the working-age population constant, if the labor force participation rate declines while the number of people employed remains unchanged, the unemployment rate will most likely:
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In the short run, a firm operating in a perfectly competitive market will most likely avoid shutdown if it is able to earn sufficient revenue to cover which of the following costs?
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An analyst uses a stock screener and selects the following metrics from his equity universe:
·price-to-equity ratio lower than the median P/E
·price-to-book value ratio lower than the median P/BV
The stocks selected would be most appropriate for portfolios for which type of investors?
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A company using IFRS reports its interest payments on long-term debt as a financing activity. If the company reported under US GAAP, the most likely effect would be a:
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At the start of the year, a company's capital contributed by owners and retained earnings accounts had balances of $10,000 and $6,000, respectively. During the year, the following events took place:
The end-of-year owners' equity is closest to:
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A company uses the percentage-of-completion method to recognize revenue from its long-term construction contracts and estimates percent completion based on expenditures incurred as a percentage of total estimated expenditures. A three-year contract for €10 million was undertaken with a 30% gross profit margin anticipated. The project is now at the end of its second year, and the following end-of-year information is available:
The gross profitrecognizedin Year 2 is closestto:
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An increase in which of the following ratios would most likely result in an increase in operating cash flows?
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The following information is from a company's accounting records:
The company's total comprehensive income (in € millions) is closest to:
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Which of the following statements most accurately describes a valuation allowance for deferred taxes? A valuation allowance is required under:
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A firm reported the following financial statement items:
The free cash flow to the firm (FCFF) is closest to:
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The analytical tool that would be most appropriate for an analyst to use to identify the percentage of a company's assets that are liquid is the:
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A company has announced that it is going to distribute a group of long-lived assets to its owners in a spin-off. The most appropriate way to account for the assets until the distribution occurs is to classify them as:
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The financial statement that would be most useful to an analyst in understanding the changes that have occurred in a company's retained earnings over a year is the statement of:
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Under US GAAP, which of the following is least likely a disclosure concerning inventory?
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Under the International Accounting Standards Board's (IASB's) Conceptual Framework, one of the qualitative characteristics of useful financial information is that different knowledgeable users would agree that the information is a faithful representation of the economic events that it is intended to represent. This characteristic is best described as:
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In accrual accounting, if an adjusting entry results in the reduction of an asset and the recording of an expense, the originating entry recorded was most likely a(n):
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Two pharmaceutical companies, Company A and Company B, internally develop drugs and drug analytics software. Company A reports in accordance with IFRS whereas Company B reports in accordance with US GAAP. Which of the following statements is most accurate regarding the development costs of the drug patents and software development?
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During a period of rising inventory costs, a company decides to change its inventory method from FIFO (first in, first out) to the weighted average cost method. Under the weighted average cost method, which of the following financial ratios will most likely be higher than under FIFO?
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Under US GAAP, interest paid is most likely included in which of the following cash flow activities?
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A retailer provides credit cards only to its most valued customers who pass a rigorous credit check. A credit card customer ordered an item from the retailer in May. The item was shipped and delivered in July. The item appeared on the customer's July credit card statement and was paid in full by the due date in August. The most appropriate month in which the retailer should recognize the revenue is:
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The following table shows selected data from a company's operations:
The cash flow from operations is closest to:
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A company operating in a highly fragmented and competitive industry reported an increase in return on equity (ROE) over the prior year. Which of the following reasons for the increase in ROE is least likely to be sustainable? The company:
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Compared with using the FIFO (first in, first out) method to account for inventory, during a period of rising prices, which of the following is most likely higher for a company using LIFO (last in, first out)?
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A company that provides cruise ship vacations uses term loans to finance the acquisition of new cruise ships. Which of the following is most likely a negative covenant for the loans? The company must:
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Which of the following statements about balance sheets is most accurate? For balance sheets prepared under:
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Selected information about a company is as follows:
The forecasted net income (in $ thousands) for next year is closest to:
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If the stated annual interest rate is 9% and the frequency of compounding is daily, the effective annual rate (EAR) is closest to:
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An analyst wants to estimate the return on the S&P 500 Index for the current year using the following data and assumptions:
·Sample size = 50 stocks from the index.
·Mean return for those stocks in the sample for the previous year = 0.114.
·Variance = 0.0529.
·The reliability factor for a 95% confidence interval with unknown population variance and sample size greater than 30 is z.025 = 1.96.
If he assumes that the S&P 500 return this year will be the same as it was last year, which of the following is the best estimate of the 95% confidence interval for this year's S&P 500 return?
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A stock's expected price movement over the next two periods is as follows:.
The initial value of the stock is $80. The probability of an up move in any given period is 75%, and the probability of a down move in any given period is 25%. Using the binomial model, the probability that the stock's price will be $79.20 at the end of two periods is closest to:
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The variance of returns of Asset A is 625. The variance of returns of Asset B is 1,225. The covariance of returns between Asset A and Asset B is 600. The correlation of returns between Asset A and Asset B is closest to:
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The following information is available for a portfolio:
The return on the portfolio is closest to:
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When an investigator wants to test whether a particular parameter is greater than a specific value, he null and alternative hypothesis are best defined as:
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Using the following sample results drawn as 25 paired observations from their underlying istributions, test whether the mean returns of the two portfolios differ from each other at the 1% evel of statistical significance. Assume the underlying distributions of returns for each portfolio are normal and that their population variances are not known.
Based on the paired comparisons test of the two portfolios, the most appropriate conclusion is that H0 should be:
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Use the following values from a student's t-distribution to establish a 95% confidence interval for the opulation mean given a sample size of 10, a sample mean of 6.25, and a sample standard eviation of 12. Assume that the population from which the sample is drawn is normally distributed and the population variance is not known.
The 95% confidence interval is closest to a:
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A stock is declining in price and reaches a price range wherein buying activity is sufficient to stop the decline. This range is best described as the:
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Over the past four years, a portfolio experienced returns of-8%,4%,17%, and -12%. The geometric mean return of the portfolio over the four-year period is closest to:
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When considering two mutually exclusive capital budgeting projects with conflicting rankings—one has a higher positive net present value (NPV), the other has a higher internal rate of return (IRR)-- the most appropriate conclusion is to choose the project with the:
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The dollar discount on a US Treasury bill with 91 days until maturity is $2,100. The face value of the bill is $100,000. The bank discount yield of the bill is closest to:
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Once an investor chooses a particular course of action, the value forgone from alternative actions is best described as a(n):
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The belief that trends and patterns tend to repeat themselves and are, therefore, somewhat predictable best describes:
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The null hypothesis is most likely to be rejected when the p-value of the test statistic:
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Which of the following is most likely a private equity strategy?
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If the price of a commodity futures contract is below the spot price, it is most likely that the:
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High Plains Capital is a hedge fund with a portfolio valued at $475,000,000 at the beginning of the year. One year later, the value of assets under management is $541,500,000. The hedge fund charges a 1.5% management fee based on the end-of-year portfolio value as well as a 10% incentive fee. If the incentive fee and management fee are calculated independently, the effective return for a hedge fund investor is closest to:
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A hedge fund begins the year with $120 million and earns a 25% return for the year. The fund charges a 1.5% management fee on end-of-year fund value and a 15% incentive fee on the return, net of the management fees, that is in excess of a 6% fixed hurdle rate. The fund's investors' return for the year, net of fees, is closest to:
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A futures trader takes a long position of 10 contracts. The initial margin requirement is $10 per contract, and the maintenance margin requirement is $7 per contract. She deposits the required initial margin on the trade date. On Day 3, her margin account balance is $40. On Day 4, variation margin is closest to:
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