Escolar Documentos
Profissional Documentos
Cultura Documentos
LEVEL I
Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients
are equal in value. It is Hatfields opinion that interest rates will fall in the near future. Based upon this,
Hatfield begins increasing the bond allocation of each portfolio. In order to comply with Standard V(B),
Communication with Clients and Prospective Clients, the analyst needs to:
A) inform the clients of the change and tell them it is based upon an opinion and not a fact.
B) make sure that the change is identical for both clients.
C) perform both of these functions.
Question 2
Lee Roth, who is an investment advisor, is riding in a taxi and finds a file of information labeled "Genco
Valuation." The folder contains a great deal of financial data, projections and nonpublic information
concerning the food products industry that lead Roth to believe that Genco will be worth 50% more than
its current stock value. Roth also finds some correspondence that leads him to believe that the file
belonged to Tom Hagan. Roth tries to find out where Hagan works so he can return the file. Roth can
recommend Genco to his clients unless Hagan works for:
A) Roth cannot recommend Genco to his clients at this time.
B) the corporate finance department for Genco.
C) the equity research department for a brokerage firm.
Question 3
A stockbroker who is a member of CFA Institute has a part-time housekeeper who also works for the
CEO of Festival, Inc. One day the housekeeper mentions to the broker that she saw the CEO of Festival
having a conversation at his home with John Tater, who is a nationally known corporate lawyer and
consultant. The stockbroker is restricted from trading on this information:
A) for both of the reasons listed here.
if the housekeeper says the meeting concerned a tender offer and the broker knows that it is
B)
non-public information.
C) only if the broker knows that the meeting is non-public information.
Question 4
Jane Dawson, CFA, an analyst at a New York brokerage firm, suspects that Bob Boatman, CFA, another
analyst at the same firm, has violated a state securities law. According to the CFA Institute Standards of
Professional Conduct, Dawson is:
NOT required to report the violation to the appropriate governmental or regulatory
A)
organizations.
B) required to report the suspected violation to CFA Institute.
C) required to report the suspected violation to the appropriate state regulatory agency.
Question 5
An analyst provides services for a charitable organization and in return gets free membership in the
organization. Part of her job is to manage the liquid assets of the organization, and those assets include
stocks. Her supervisor in the organization calls her and tells her to buy a certain stock for the portfolio
based upon insider information from a board member in the organization. The analyst objects, but the
supervisor says this is what they have always done and sees no reason for changing now. The analyst
complies with the request. With respect to Standards IV(A), Loyalty to Employer, and II(A), Material
Nonpublic Information, the analyst violated:
A) both Standards IV(A) and II(A).
B) only Standard IV(A) requiring duty of loyalty.
C) only Standard II(A) that prohibits insider trading.
Question 6
Bob Hatfield, CFA, has his own money management firm with two clients. The accounts of the two clients
are equal in value. Hatfield has been trading on the clients behalf with a single brokerage firm for several
years. Because of his many years of business, the brokerage firm occasionally gives Hatfield shares in an
initial public offering (IPO) to sell to his clients. Hatfield has a policy of allocating the IPO shares equally
between the portfolios of the two clients. This policy is:
A) a violation of Standard III(C), Suitability.
B) congruent with Standard III(C), Suitability.
C) a violation of Standard III(B), Fair Dealing.
Question 7
In 1995, the CFA Institute sponsored and funded the Global Investment Performance Standards (GIPS)
in response to:
A) an increase in insider trading.
B) a need to address issues, such as portability of investment results.
C) both of the reasons listed here.
Question 8
Compliance with the CFA Institute Performance Presentation Standards (PPS) or the Global Investment
Performance Standards (GIPS) is:
A) the only way to comply with Standard V(B), Performance Presentation.
B) required by the Code of Conduct.
C) the best way to comply with Standard V(B), Performance Presentation.
Question 9
Bill Fox, CFA, has been preparing a research report on New London Wire and Cable, one of his major
investment clients. He had completed much of his analysis and had planned on having his report typed
and bound today. Unfortunately, his briefcase was stolen while he ate breakfast, and he lost all his notes
and working papers. The lost materials included his notes from management interviews, conversations
with suppliers and competitors, dates of company visits, and his computer diskette containing much of his
quantitative analysis. Fox's client needs this report tomorrow. In a panic, Fox called New London's vice
president of finance and was faxed a copy of the company's most recent financial projections. Fox
remembered that his own analysis showed that management's estimates were too high. He did not
remember the exact amount, so he revised New London's figures downward 10%. Fox also incorporated
some charts and graphs on New London from a research report he had received last week from a small
regional research firm and used some information from a Standard & Poor's reference work. With the help
of his secretary, a Xerox machine, and some creative word processing, Fox got the report done in time for
the evening Fedex pick up. On the way home from the office that night, Fox wondered if he had violated
any CFA Institute Standards of Professional Conduct. Fox has:
A) violated none of the Standards.
violated the requirement to have a reasonable basis for a recommendation, the prohibition
B)
against plagiarism, and the requirement to maintain appropriate records.
violated the requirement to have a reasonable basis for a recommendation and the prohibition
C)
against plagiarism.
Question 10
John Hill, CFA, has been working for Advisors, Inc., for eight years. Hill is about to start his own money
management business and has given his two-week notice of his resignation from Advisors. A few days
before his resignation takes effect, on his lunch hour, he takes out a loan from a bank on behalf of his
new business and uses the money to buy some office equipment for his new business. Since he engaged
in these transactions while still an employee of Advisors, Hill violated Standard IV(A), Loyalty to
Employer, by:
A) engaging in a financial transaction, like taking out a loan, only.
B) neither of these actions.
C) both taking out the loan and purchasing the office equipment.
Question 11
Which of the following activities would be following a component of the Code of Ethics explicitly?
A) Attending continuing education seminars on investing and inviting colleagues to come along.
B) Consulting with colleagues about opinions you reach in your research.
C) Maintaining a list of colleagues who have violated the CFA Institute standards.
Question 12
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 CFA Institute Standards of Professional Conduct involving prohibition against plagiarism,
which of the following statements is TRUE?
A) Both Bagenot and Wain violated the Standards.
B) Wain violated the Standards, but Bagenot did not.
C) Bagenot violated the Standards, but Wain did not.
Question 13
If an analyst has a policy of making an inquiry into a clients financial situation, investment experience,
and investment objectives regularly, this is:
A) neither of these.
B) congruent with Standard III(C), Suitability.
C) a violation of Standard III(E), concerning client confidentiality.
Question 14
Martin Tripp, CFA, is vice-president of the equity department at Walker Financial, a large money
management firm. Of the twenty analysts in his department for whom he has supervisory responsibility,
eight are subject to CFA Institute Standards of Professional Conduct. Tripp believes that he cannot
personally evaluate the conduct of the twenty analysts on a continuing basis. Therefore, he plans to
delegate some of his supervisory duties to Sarah Green, who is subject to the Standards, and some to
Bob Brown, who is not subject to the Standards. According to CFA Institute Standards of Professional
Conduct, which of the following statements about Tripp's ability to delegate supervisory duties is most
correct?
A) Tripp cannot delegate any of his supervisory duties to either Green or Brown.
Tripp can delegate some or all of his supervisory duties to Brown, even though Brown is not
B)
subject to the Standards.
Tripp can delegate some or all of his supervisory duties only to Green because she is subject
C)
to the Standards.
Question 15
Anna Nichols is a research analyst preparing a report on Enterprise Company. In order to ensure
accuracy in her report, she sends the report to the Chief Financial Officer (CFO) of Enterprise to allow him
to point out some factual errors. The CFO makes some corrections, which Nichols checks and agrees
with. The CFO also sends Nichols several pages of market analyses that appear favorable for Enterprise.
Nichols checks the analyses for accuracy and includes a summary of them in her report, pointing out that
the data came from Enterprise. Nichols has:
violated the Standards of Professional Conduct by including the data from the CFO in the
report.
violated the Standards of Professional Conduct by sending the report to the CFO before
B)
sending it to her clients.
C) not violated the Standards of Professional Conduct.
A)
Question 16
Greg Stiles, CFA, CAIA, has recently liquidated most of a clients portfolio because the client is planning
to buy a house. Stiles informs one of the brokers in his office who has his real estate license about the
plans of his client. With respect to Standard III(E), Preservation of Confidentiality, this action:
A) is appropriate since Stiles keeps the information in the firm.
B) is appropriate since Stiles only tells a licensed salesman.
C) violates the Standard unless the client asks Stiles to tell the licensed salesman.
Question 17
A money management firm has the following policy concerning new recommendations: When a new
recommendation is made, each portfolio manager estimates the likely transaction size for each of their
clients. Clients are notified of the new recommendation in the order of their estimated transaction size
largest first. All clients have signed a form where they acknowledge and consent to this allocation
procedure. With respect to Standard III(B), Fair Dealing, this is:
A) not a violation because the clients have signed the consent form.
B) not a violation because the clients are aware of the policy.
C) a violation of the standard.
Question 18
Which of the following is a possible breach of fiduciary duties by a CFA Institute member who manages
assets on behalf of a client?
A) Using directed brokerage.
B) Voting all proxies of stocks the client owns.
C) Neither of these breach fiduciary duties.
Question 19
An analyst working at an investment firm has a client that rents limousines. The client tells the analyst that
as long as he is the clients analyst, he can have free use of a limousine several times a year. The analyst
needs to:
A) do nothing since the offer is not linked to the performance of the client's portfolio.
B) explicitly refuse such an offer.
C) inform his supervisor in writing of the offer if the analyst intends to accept the offer.
Question 20
The historical return for each of a portfolios four positions is shown below. Using the population standard
deviation, what is the coefficient of variation (CV) for these returns?
Position Return
A)
B)
C)
17.0%
12.2%
3.9%
8.4%
3.12.
1.89.
1.56.
Question 21
What is the effective annual yield of a T-bill that has a money market yield of 5.665% and 255 days to
maturity?
A) 5.79%.
B) 5.92%.
C) 4.01%.
Question 22
Assuming a discount rate of 10%, which stream of annual payments has the highest present value?
A) $110
$20
B) $20
$5
C) $100 $100
$10
$20
$100
$5
$110
$500
Question 23
An investor is considering purchasing ACQ. There is a 30% probability that ACQ will be acquired in the
next two months. If ACQ is acquired, there is a 40% probability of earning a 30% return on the investment
and a 60% probability of earning 25%. If ACQ is not acquired, the expected return is 12%. What is the
expected return on this investment?
A) 12.3%.
B) 16.5%.
C) 18.3%.
Question 24
A sample of returns for four randomly selected assets in a portfolio is shown below:
Asset Return (%)
A
1.3
1.4
2.2
3.4
What is the standard deviation of a portfolio if you invest 30% in stock one (standard deviation of 4.6%)
and 70% in stock two (standard deviation of 7.8%) if the correlation coefficient for the two stocks is 0.45?
A) 6.20%.
B) 0.38%.
C) 6.83%.
Question 26
1.3
1.4
2.2
3.4
1.7
2010 Finstructor. All Rights Reserved
Question 27
In order to calculate the net present value (NPV) of a project, an analyst would least likely need to know
the:
A) timing of the expected cash flows from the project.
B) opportunity cost of capital for the project.
C) internal rate of return (IRR) of the project.
Question 28
The Night Raiders, an expansion team in the National Indoor Football League, is having a challenging
first season with a current win loss record of 0 and 4. However, the team recently signed four new
defensive players and one of the team sponsors (who also happens to hold a CFA charter) calculates the
probability of the team winning a game at 0.40. Assuming that whether the team wins a game is
independent of whether it wins any other game, the probability that the team will win 6 out of the next 10
games is closest to:
A) 0.112.
B) 0.417.
C) 0.350.
Question 29
Which one of the following would be a bullish signal to a smart-money technical analyst?
A) Average-quality bond yields move closer to high-quality bond yields.
B) The T-bill Eurodollar spread widens.
C) The debit balances in brokerage accounts decrease.
Question 30
For a certain class of junk bonds, the probability of default in a given year is 0.2. Whether one bond
defaults is independent of whether another bond defaults. For a portfolio of five of these junk bonds, what
is the probability that zero or one bond of the five defaults in the year ahead?
A) 0.0819.
B) 0.7373.
C) 0.4096.
Question 31
A Type II error:
A) fails to reject a true null hypothesis.
B) fails to reject a false null hypothesis.
C) rejects a true null hypothesis.
Question 32
Question 33
Monthly sales of hot water heaters are approximately normally distributed with a mean of 21 and a
standard deviation of 5. What is the probabilility of selling 12 hot water heaters or less next month?
A) 3.59%.
B) 1.80%.
C) 96.41%.
Question 34
Question 35
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:
A) significance level of the test is 5%.
B) probability of a Type I error is 2.5%.
C) power of the test is 95%.
Question 36
A candidate for public office has proposed a program of wealth transfers based on the principles of
utilitarianism. In support of her proposal, she makes the following statements:
Statement 1: Increasing taxes on high income earners will cause them to work more hours to maintain
their after-tax income, resulting in greater economic output.
Statement 2: The government will need to hire people to manage and administer the wealth transfers.
These new jobs will further expand economic output.
With respect to these statements:
A) only statement 1 is incorrect.
B) both are incorrect.
C) only statement 2 is incorrect.
Question 37
Which of the following most accurately describes the relationship between marginal cost (MC), average
variable cost (AVC), marginal product (MP), and average product (AP)?
A) When MP > AP, MC > AVC.
B) When MP = AP, MC > AVC.
C) When MP = AP, MC = AVC.
Question 38
Which of the following most accurately describes the relationship between the average total cost (ATC)
curve and the average variable cost (AVC) curve? The vertical distance between the ATC and AVC
curves:
A) increases as output increases.
B) increases and then decreases as output increases.
C) decreases as output increases.
Question 39
If the price elasticity of demand is 1.5 and a change in the price of the product increases the quantity
demanded by 4%, then what is the percent change in price?
A) +2.667%.
B) 0.375%.
C) 2.667%.
Question 40
A practice whereby a seller charges different prices to different consumers of the same product or service
is called:
A) price competition.
B) discriminatory pricing.
C) price discrimination.
Question 43
If firms and households decide to reduce their currency holdings and increase their holdings of funds in
their checking accounts by an equal amount, what will be the impact on the money supply if the U.S.
Federal Reserve does not undertake any offsetting actions?
There will be no direct impact on the money supply. However, banks excess reserves will
A) increase, which will enable them to increase their loans, thereby leading to an indirect
increase in the money supply.
There will be no direct impact on the money supply, however, banks excess reserves will
B) decrease, which will cause them to decrease their loans, thereby leading to an indirect
decrease in the money supply.
There will be no direct or indirect impact on the money supply because the decrease in
C)
currency holdings will be exactly offset by the increase in the funds in the checking accounts.
Question 45
Which one of the following Federal Reserve monetary policies, when pursued in line with the U.S.
governments fiscal policies, would help increase aggregate demand during a period of high
unemployment?
A) The sale of bonds by the Fed.
B) An increase in the reserve requirements for financial institutions.
C) A decrease in the discount rate.
Question 46
Consider an economy operating at full employment, but with a high inflation rate. Based on the short-run
Phillips curve, an unexpected decrease in money supply growth is likely to result in the following changes
in the unemployment rate and inflation rate:
Unemployment rate
A) Increase
B) Increase
C) Remain unchanged
Inflation rate
Fall to the desired rate
Remain above the desired rate
Fall to the desired rate
Question 47
Question 48
Which of the following is an independent auditor least likely to do with respect to a companys financial
statements?
A) Prepare and accept responsibility for them.
B) Provide an opinion concerning their fairness and reliability.
C) Confirm assets and liabilities contained in them.
Question 49
Which of the following statements regarding the treasury stock method of computing diluted shares is
least accurate? The treasury stock method:
assumes that the hypothetical funds received by the company from the exercise of the options
A) are used to sell shares of the companys common stock in the market at the average market
price.
B) is used when the exercise price of the option is less than the average market price.
increases the total number of shares by less than the number that the exercise of the options
C)
would create.
Question 50
Balance Sheet
Assets
2004 2005 Liabilities
2004 2005
Cash
60 80 Accts. Payable
100 75
Accts. Rec.
140 155 Wages payable
80 85
Inventories
47 72 Bonds
65 80
Fixed Assets 120 160 Common Stock
40 70
Accum. Depr. (29) (35) Retained Earnings 53 122
Total
338 432
338 432
Note: the dividend payout ratio equals 45%.
What is the net increase or decrease in cash?
A) +$20.
B) +$15.
C) -$15.
Question 51
When a reliable estimate of costs exists, ultimate payment is assured, and revenue is earned as costs are
incurred, which of the following revenue recognition methods should be used?
A) Cost recovery method.
B) Percentage-of-completion method.
C) Installment sales method.
Question 52
$30
20
50
80
60
30
20
20
10
Question 53
How will dilutive securities affect earnings per share (EPS) when determining diluted earnings per share?
A) Increase EPS.
B) Either decrease or increase EPS depending upon if the security is dilutive or antidilutive.
C) Decrease EPS.
Question 54
Which of the following statements regarding making changes in accounting principles is least accurate?
Changes in accounting estimates are now treated the same as changes in accounting
principles.
A change in accounting principle is a change from one generally accepted accounting principle
B)
to another generally accepted principle. The firm making the change must justify the change.
C) The general rule is retrospective application.
A)
Question 55
While attending a local college, music major Anjolie Webster accepts a temporary position with a small
manufacturing firm. Currently, the firm uses LIFO to account for inventory, but the owner is just curious
about how the financial results would look if the company used FIFO. Before the owner leaves for her
voice lesson, she hands Webster a photocopy of the inventory data for the current period (summarized
below).
Using the information provided, determine which of the following statements is least accurate? All else
equal, compared to LIFO, using FIFO would result in:
A) a lower ending inventory balance.
B) a current ratio of approximately 1.60.
C) a lower gross margin.
Question 56
Units
Unit Price
Beginning Inventory
699
$5.00
Purchases
710
$8.00
806
$15.00
Sales
SGA Expenses
Part 1)
Determine the cost of goods sold using the weighted average method and also using the first in, first out
(FIFO) method.
Weighted Average
A)
$4,986.02
B)
$5,248.44
C)
$4,351.00
FIFO
$4,133.45
$4,351.00
$5,248.44
Part 2)
What is the ending inventory level in dollars using the FIFO method?
A) $6,160.00.
B) $4,824.00.
C) $4,582.80.
Question 57
Assume that Hunter Round Restaurant Supply currently uses the last in, first out (LIFO) method to
account for inventory and that the business environment is one of rising prices and stable or growing
inventory balances. In addition, Hunter Round has an effective tax rate of zero percent due to tax loss
carrybacks. All else equal, which of the following statements is least likely valid? By using LIFO instead of
first in, first out (FIFO), Hunter Round has:
A) lower net income.
B) lower working capital.
C) higher cash flows.
Question 59
Given the following data what is the ending inventory value using the FIFO method?
Purchases
Sales
50 units at $50/unit
25 units at $55/unit
60 units at $45/unit
30 units at $50/unit
70 units at $40/unit
A) $3,250.
B) $3,200.
C) $3,600.
45 units at $45/unit
Question 60
Selected financial information gathered from Alpha Company and Omega Corporation follows:
Revenue
Earnings before interest, taxes,
depreciation, and amortization
Quick assets
Average fixed assets
Current liabilities
Interest expense
Alpha
Omega
$1,650,000
69,400
$1,452,000
79,300
216,700
300,000
361,000
44,000
211,300
323,000
404,400
58,100
Falcon Financial Group is considering the purchase of Company A or Company B based on a low priceto-book investment strategy that also considers differences in solvency. Selected financial data for both
firms, as of December 31, 20X7, follows:
in millions, except per-share data
Current assets
Fixed assets
Total debt
Common equity
Outstanding shares
Market price per share
Company A
Company B
$3,000
$5,700
$2,700
$6,000
500
$26.00
$5,500
$5,500
$3,500
$7,500
750
$22.50
Company A values its inventory using the first in, first out (FIFO) method.
Company Bs 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
A) $2.17
$2.81
B) $1.63
$2.06
C) $2.17
$2.06
Question 62
When examining a firms ownership structure, it is imperative to examine any super-voting rights by
certain classes of shareholders. Which of the following statements concerning these voting rights is most
accurate?
Super-voting rights by certain classes of shareholders impair the firms ability to raise capital
for the future.
If a company has a significant minority shareowner group, such as a founding family,
B)
cumulative voting to elect board members can be a positive factor for shareholders.
Firms with a single class of common equity could encourage prospective acquirers to only
C)
deal directly with shareholders with the supermajority rights.
A)
Question 63
Assume that a company has equal amounts of debt, common stock, and preferred stock. An increase in
the corporate tax rate of a firm will cause its weighted average cost of capital (WACC) to:
A) rise.
B) more information is needed.
C) fall.
Question 64
Which of the following statements about the discounted payback period is least accurate? The discounted
payback:
A) frequently ignores terminal values.
B) period is generally shorter than the regular payback.
C) method can give conflicting results with the NPV.
Question 65
Which of the following rights concerning shareholder-sponsored board nominations and shareholdersponsored resolutions would be advantageous to an investor?
The right to propose initiatives for consideration at the annual meeting, but not the right to
nominate or remove board members in certain circumstances.
The right to nominate or remove board members in certain circumstances, and the right to
B)
propose initiatives for consideration at the annual meeting.
The right to nominate or remove board members in certain circumstances, but not the right to
C)
propose initiatives for consideration at the annual meeting.
A)
Question 66
Which of the following statements about NPV and IRR is least accurate?
A) For mutually exclusive projects you should use the IRR to rank and select projects.
B) For independent projects if the IRR is > the cost of capital accept the project.
C) The NPV method assumes that all cash flows are reinvested at the cost of capital.
Question 67
A firm is planning a $25 million expansion project. The project will be financed with $10 million in debt and
$15 million in equity stock (equal to the company's current capital structure). The before-tax required
return on debt is 10% and 15% for equity. If the company is in the 35% tax bracket, what cost of capital
should the firm use to determine the project's net present value (NPV)?
A) 12.5%.
B) 11.6%.
C) 9.6%.
Question 68
20%
14%
50%
15%
30%
Question 69
Question 70
Two assets are perfectly positively correlated. If 30% of an investor's funds were put in the asset with a
standard deviation of 0.3 and 70% were invested in an asset with a standard deviation of 0.4, what is the
standard deviation of the portfolio?
A) 0.151.
B) 0.426.
C) 0.370.
Question 71
Given a beta of 1.25 and a risk-free rate of 6%, what is the expected rate of return assuming a 12%
market return?
A) 13.5%.
B) 10%.
C) 31%.
Question 72
Which of the following is least likely considered a source of systematic risk for bonds?
A) Purchasing power risk.
B) Market risk.
C) Default risk.
Question 73
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:
Question 74
Given that the value-weighted index was originally set at 100 and Company A's stock is currently selling
for $4 per share while Company Bs stock is still at $10 per share, what is the current value of the priceweighted index and the value-weighted index?
A)
B)
C)
Price-weighted
8
7
7
Value-weighted
150
150
300
Question 75
Which of the following statements least likely describes the role of a portfolio manager in perfectly
efficient markets? Portfolio managers should:
A) construct a portfolio that includes financial and real assets.
construct diversified portfolios that include international securities to eliminate unsystematic
B)
risk.
quantify client's risk tolerance, communicate portfolio policies and strategies, and maintain a
C)
strict buy and hold policy avoiding any changes in the portfolio to minimize transaction costs.
Question 76
Which of the following statements about efficient markets and indexes is least accurate?
Efficient markets tests have found that stocks with high price-to-earnings ratios (P/E) tend to
outperform stocks with low P/E ratios.
B) If markets are efficient, investors should not trade often.
An unweighted index assumes that investors make and maintain an equal dollar investment in
C)
each stock in the index.
A)
Question 77
Question 78
Which category of tests assumes that, in an efficient market, securities lie on the security market line?
A) Cross-sectional tests.
B) Anomaly studies.
C) Time-series tests.
Question 79
The January Anomaly, the neglected firm effect, and the book value/market value ratio are studies
examining which form of the EMH?
A) Semistrong-form of the EMH.
B) Weak-form of the EMH.
C) Both the weak and semistrong forms of the EMH.
Question 80
Question 81
Retention = 40%
ROE = 25%
k = 14%
Using the infinite period, or constant growth, dividend discount model, calculate the price of Webcos
stock assuming that next years earnings will be $4.25.
A) $63.75.
B) $55.00.
C) $125.00.
Question 82
Assuming that a company's return on equity (ROE) is 12% and the required rate of return is 10%, which
of the following would most likely cause the company's P/E ratio to rise?
A) The firm's ROE falls.
B) The firm's dividend payout rises.
C) The inflation rate falls.
Question 83
Use the following information to determine the value of River Gardens common stock:
Question 84
Which of the following is a disadvantage of using price-to-sales (P/S) multiples in stock valuations?
A) It is difficult to capture the effects of changes in pricing policies using P/S ratios.
B) The use of P/S multiples can miss problems associated with cost control.
C) P/S multiples are more volatile than price-to-earnings (P/E) multiples.
Question 85
Which of the following statements regarding the value of the firm is most accurate?
The board of directors increases the dividend payout ratio, the value of the company will
increase.
The government engages in a restrictive monetary policy and the expected inflation rate
B)
decreases, the P/E ratio will decrease.
A company's legal and treasury departments act to reduce the tax rate from 37.5% to 37.0%,
C)
the value of the firm will increase.
A)
Question 86
What is the value of a stock that paid a $0.25 dividend last year, if dividends are expected to grow at a
rate of 6% forever? Assume that the risk-free rate is 5%, the expected return on the market is 10%, and
the stock's beta is 0.5.
A) $16.67.
B) $17.67.
C) $3.53.
Question 87
Kirsten Thompson, CFA candidate, is studying the relationships between a bonds coupon rate and the
required market yield. One study question concerns a new-issue, 15-year, $1,000 face value 6.75% semiannual coupon bond priced at $1,075. Which of the following choices describes the bond and the
relationship of the bonds market yield to the coupon?
A) Discount bond, required market yield is greater than 6.75%.
B) Premium bond, required market yield is less than 6.75%.
C) Premium bond, required market yield is greater than 6.75%.
Question 88
Which of the following is the most appropriate strategy for a fixed income portfolio manager under the
anticipation of an economic expansion?
A) Sell corporate bonds and purchase treasury bonds.
B) Purchase corporate bonds and sell treasury bonds.
C) Enter a pay-fixed, receive-floating rate swap.
Question 89
On November 15, 2006, Grinell Construction Company decided to issue bonds to help finance the
acquisition of new construction equipment. They issued bonds totaling $10,000,000 with a 6% coupon
rate due June 15, 2026. Grinell has agreed to pay the entire amount borrowed in one lump sum payment
at the maturity date. Grinell is not required to make any principal payments prior to maturity. What type of
bond structure has Grinell issued?
A) Bullet maturity.
B) Serial bonds.
C) Income bonds.
Question 90
The annual payment of a 20-year, semi-annual pay bond with a $5,000 par value and a 6.875% coupon
rate currently trading at 89.28 is closest to:
A) $171.88.
B) $153.45.
C) $343.75.
Question 91
A Treasury security carries a yield of 4.2% and a non-Treasury security carries a yield of 6.4%. Using the
Treasury rate as the reference rate, which of the following statements is least accurate?
A) If the Treasury rate rises and the absolute spread stays the same, the yield ratio declines.
B) The absolute yield spread is 2.2%.
C) The yield ratio is 1.022.
Question 93
One of the most commonly used yield spread measures is the nominal spread. Which of the following is a
limitation of nominal spread? The nominal spread assumes:
A) an upward sloping yield curve.
B) all coupon payments are reinvested at a rate equal to the risk free rate.
C) a flat yield curve.
Question 94
A 20-year, $1,000 face value, 10% semi-annual coupon bond is selling for $875. The bond's yield to
maturity is:
A) 5.81%.
B) 11.43%.
C) 11.62%.
Question 95
Given the following spot and forward rates, how much should an investor pay for each $100 of a 3-year,
annual zero-coupon bond?
When computing the yield to maturity, the implicit reinvestment assumption is that the interest payments
are reinvested at the:
A) prevailing yield to maturity at the time interest payments are received.
B) yield to maturity at the time of the investment.
C) coupon rate.
Question 97
Vijay Ranjin, CFA, 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. Golsons
economics department has forecast that interest rates are going to change by 50 basis points. Based on
this forecast, Ranjin estimates that the portfolios 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
portfolios effective duration?
A) 4.3
B) 0.4
C) 3.6
Question 98
Given a bond with a modified duration of 1.93, if required yields increase by 50 basis points, the expected
percentage price change would be:
A) -0.965%.
B) -1.025%.
C) 1.000%.
Question 99
Which of the following statements about the early exercise of an option is least accurate? For an
American:
call option, on an asset with no cash flows, early exercise can be profitable if the option is far
in the money.
B) put option on an asset with no cash flows, early exercise is sometimes optimal.
C) call option on an asset with positive cash flows, early exercise is sometimes profitable.
A)
Question 100
Which of the following is least likely a characteristic of London Interbank Offered Rate (LIBOR)?
A) Set by the European Central Bank.
B) Adjusted daily.
C) Paid on loans denominated in U.S. dollars.
Question 101
Bidco Corporation common stock has a market value of $30.00. Which statement about put and call
options available on Bidco common is most accurate?
A) A put with a strike price of $35.00 is in-the-money.
B) A call with a strike price of $25.00 is at-the-money.
C) A put with a strike price of $20.00 has intrinsic value.
Question 102
A legally binding promise to buy 140 oz. of gold two months from now at a price agreed upon today is
a(n):
A) forward commitment.
B) hedge.
C) take-or-pay contract.
Question 104
An investor sold ten March stock index futures contracts. The multiplier on the contract is 250. At
yesterdays settlement price of 998.40 the margin balance in the account was computed as $86,450.
Today the index future had a settlement price of 1000.20. The new margin amount is:
A) $90,950.
B) $81,950.
C) $86,900.
Question 105
An investor is considering investing in a venture capital project that will have a large payoff at exit, which
is estimated to occur in four years. The investor realizes that the risk of failure is high, given the following
estimated probabilities:
Year
Failure Probability
0.30
0.28
0.28
0.25
The probability that the project will survive to the end of the fourth year is:
A) 27.22%.
B) 25.00%.
C) 27.75%.
Question 107
Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex. She has
hired Carson, CFA, to advise her on the investment. Carson has estimated the following data for Happy
Valleys next accounting period:
The propertys net operating income (NOI) and value should be closest to:
NOI
Value
A) $2.83 million
$33.75 million
B) $2.70 million
$21.60 million
C) $2.70 million
$33.75 million
Question 108
Which of the following is a disadvantage to using the comparables approach to valuing investments in
closely held companies?
A) The benchmark value used may be mispriced or difficult to establish.
B) Cost to replace assets may not reflect current value.
C) It is difficult to determine the appropriate discount rate.
Question 110
An investor is contemplating buying a load fund versus a no load mutual fund. She is trying to figure out
the actual amount she will have to spend on the load fund. The shares have a net asset value (NAV) of
$34.50 and a load of 5.2%. Determine which type of fund will always have a share price equal to the NAV
and the price she will pay for the load fund.
Fund
Offering Price
A) open-end
$34.50
B) open-end
$36.39
C) close-end
$36.39
Question 111
Use the following information and the multi-period dividend discount model to find the value of
Computechs common stock.
Question 112
Two economists, Pearl Millidge and Byron Forrest, are discussing theories that explain why increased
inflation causes nominal interest rates to rise. They offer the following explanations:
Millidge: Because businesses expect higher prices for their output in the future, they will expect a greater
return on their investments and will increase their demand for financial capital, which will drive interest
rates higher.
Forrest: Savers expect to pay higher prices for goods and services in the future, so they will be less
willing to trade current consumption for future consumption and will therefore supply less financial capital,
so interest rates increase.
Are these explanations CORRECT?
Millidge
A) Incorrect
B) Correct
C) Correct
Forrest
Correct
Incorrect
Correct
Question 114
Question 115
Which of the following statements about bonds, indexes, markets, and market efficiency is least
accurate?
A price-weighted index assumes the investor holds an equal number of shares of the stocks in
the index.
B) Tests of market efficiency find that stock exchange specialists derive above-average returns.
C) The bulk of all bond trading takes place on organized exchanges.
A)
Question 116
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?
A) 2.04%.
B) 3.95%.
C) 4.26%.
Question 117
Which of the following statements regarding basic and diluted EPS is least accurate?
A) A simple capital structure contains no potentially dilutive securities.
B) Antidilutive securities decrease EPS if they are exercised or converted.
C) Dilutive securities decrease EPS if they are exercised or converted to common stock.
Question 118
Jim Crockett is a portfolio manager for Miami Advisors and reports to Vicki Tubbs, the Chief Investment
Officer. Miami has developed a proprietary model that has been thoroughly researched and is known
throughout the industry as the Miami model. The model is purely quantitative and takes a given set of
client characteristics and universe of potential securities and forms a portfolio for the investor. Individual
portfolio managers are responsible for selecting securities to fit into the model based on
recommendations from the firm's research department and the managers' own judgment. Because of the
specific nature of the inputs to the model, each manager is responsible for applying the model on his or
her own computer. The basic philosophy of the process is thoroughly explained to clients. Crockett does
not understand the basics of the model, but feels that since it provides pure quantitative output, he does
not need to understand it. However, he misapplies the model for several of his clients. In reviewing some
of Crockett's portfolios, Tubbs finds the errors and points them out to Crockett. Which of the following
statements regarding Tubbs and Crockett are TRUE?
Crockett has violated the Standards by not considering the appropriateness and suitability of
the investment for his clients.
Crockett has violated the Standards by not exercising diligence and thoroughness in making
B)
investment recommendations.
C) Tubbs has violated the Standards by failing to supervise adequately.
A)
Question 119
For years, John Berger, a CFA charterholder and CEO of a company, relied upon a set of reasonable
procedures for preventing violations of the Standards of Practice in the firm. The company has recently
arranged to have members of CFA Institute as mid-level supervisors throughout the firm. With this
arrangement Berger has delegated the supervision of employees with respect to the Code and Standards
to the mid-level managers. With this action Berger:
A) is relieved of his obligation to supervise the employees under the mid-level supervisors.
is still responsible for seeing that procedures are in place to prevent violations of the Code and
B)
Standards.
C) has violated Standard IV(C), Responsibilities of Supervisors.
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