Items to review

Which of the following most accurately describes the basis for construction of nearly all bond market indexes? A.) Dealer prices B.) Model prices C.) Market prices

A is correct

Which of the following suggestions is best aligned with CFA Institute advocacy for financial reporting that reflects economic reality? A.) Cash flow statements prepared using the direct format for cash flow from operations (CFO) B.) Conservatism in revenue recognition policies C.) Detailed cost information for long-lived assets

A is correct

for a company using FIFO for rising prices how will the Debt to equity ratio be effected compared to LIFO? A.) Higher B.) Lower C.) the same

A is correct

for inventory purposes IFRS uses A.) lower of cost or Net Realizable value B.) lower of cost or market value

A is correct

when accounting expense > Tax deduction this results in a A.) Deferred tax liability B.) Deferred Tax Asset

B is correct

A company is selling a long-lived asset with a carrying amount of $70,000 for $80,000. 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: A.) a gain of $10,000. B.) a loss of $40,000. C.) revenues of $80,000.

A When a long-lived asset is sold, only the net gain or loss is reported on the income statement. The gain or loss on a sale = Sales proceeds − Carrying amount = $80,000 − $70,000 = $10,000 gain.

Which of the following best describes valuation allowance? Valuation allowance is a reserve: A)against deferred tax assets based on the likelihood that those assets will not be realized. B)created when deferred tax assets are greater than deferred tax liabilities. C)against deferred tax liabilities based on the likelihood that those liabilities will be paid.

A is correct

Which of the following circumstances is most likely indicative of an increase in a company's future earnings? A)Work-in-process inventory increasing faster than finished goods inventory. B)Finished goods inventory increasing faster than work-in-process inventory. C)Finished goods inventory increasing faster than sales.

A is correct

Which of the following groups is most likely responsible for maintaining oversight and responsibility for the Professional Conduct Program (PCP)? A.) CFA Institute Board of Governors B.) Disciplinary Review Committee C.) Professional Conduct Division

A is correct

Which of the following is most likely considered an example of matrix pricing when determining the cost of debt? A.) Debt-rating approach only. B.) Yield-to-maturity approach only. C.) Both the yield-to-maturity and the debt-rating approaches.

A is correct

Which of the following is most likely to be an explanation of the power of a test? The power of a test is the probability of: A.) rejecting the null when it is false. B.) not accepting the alternative when it is false. C.) a Type I error.

A is correct

Which of the following ratio levels would suggest that a company is holding obsolete inventory? A)Low inventory turnover ratio. B)Low inventory value compared to cost of goods sold. C)Low number of days in inventory.

A is correct

if debt is acquired with the intent to collect interest and sell before maturity it is measured at A.) Fair Value B.) Amortized cost

A is correct

the exit strategy used by a PE firm where it sells a company that it invested in to another PE firm or group of investors is called? A.) Secondary Sale B.) Trade Sale

A is correct

a trader buys a stock at $85 on margin with a leverage ratio of 3.4 and a maintenance margin of 25%. what price is a margin call likely to occur at? A.) $80 B.) $69.37 C.) $84.24

A is correct .7058 / .75 * 85 =

For which of the following inventory valuation methods is the gross profit margin least likely to be the same under both a perpetual inventory system and a periodic inventory system? A.) LIFO B.) Specific identification C.) FIFO

A is correct A is correct. The periodic and perpetual systems result in the same inventory and cost of goods sold values (and thus gross profit margin) using both FIFO and specific identification valuation methods, but not always under LIFO.

The following annual financial data are available for a company: £ millions Beginning interest payable = 90.4 Cash paid for interest = 103.3 Ending interest payable = 84.5 Interest expense (in millions) for the year is closest to: A.) £97.4. B.) £109.2. C.) £71.6.

A is correct Beginning interest payable= 90.4 (Plus) interest expense ? Minus cash paid for interest = -103.3 Ending interest payable= 84.5 interest expense = cash paid for interest - change in interest payable

A random variable follows a continuous uniform distribution over 27 to 89. What is the probability of an outcome between 34 and 38? A)0.0645. B)0.0719. C)0.0546.

A is correct (38 - 34) / (89 - 27) = 0.0645

Which of the following derivatives is least likely to be classified as a contingent claim? A.) A futures contract B.) A call option contract C.) A credit default swap

A is correct A futures contract is classified as a forward commitment

inventory at cost = $8.45 million completion costs = 1.4 million expected sales price = $9.55 million selling expenses = 4% normal profit margin = 12% is PAM reports under IFRS inventory value would be A.) 7.77 B.) 8.45 C.) 9.17

A is correct IFRS uses lower of cost or NRV NRV = sales price - estimated cost to complete and sell costs 9.55 *.96 - 1.4 = 7.77 8.45 > 7.77

Technical analysts who employ Elliott Wave Theory are most likely to use Fibonacci numbers to forecast the: A)sizes of waves. B)number of subwaves within a larger wave. C)timing of wave direction changes.

A is correct In Elliott Wave Theory, the sizes of waves are believed to correspond to ratios of Fibonacci numbers. Technical analysts who employ this theory may use Fibonacci ratios to estimate price targets.

Which of the following statements about securities exchanges is most accurate? A)Setting a negotiated price to clear the market is a method used to set the closing price in major continuous markets. B)Call markets are markets in which the stock is only traded at specific times. C)Continuous markets are markets where trades occur 24 hours per day.

B

Which of the following statements regarding call options is most accurate? The: A)breakeven point for the seller is the strike price minus the option premium. B)breakeven point for the buyer is the strike price plus the option premium. C)call holder will exercise (at expiration) whenever the strike price exceeds the stock price.

B is correct

for inventory purposes GAAP uses A.) lower of cost or Net Realizable value B.) lower of cost or market value

B is correct

if debt is acquired with the intent to hold it until maturity it is measured at the. A.) Fair value B.) Amortized cost

B is correct

the exit strategy used by a PE firm where it sells a company it invested in to to a competitor or strategic competitor in the industry called? A.) Secondary Sale B.) Trade Sale

B is correct

the stage that involves funds to help the company prepare for a IPO is the _________ stage A.) seed stage. B.) mezzanine stage. C.) angel investing stage.

B is correct

Value-at-Risk (VaR) and Conditional VaR are best described as measures of: A)tail risk. B)liquidity risk. C)model risk.

A is correct

A deferred tax Liability occurs when... A.) Taxable income > Accounting profit B.) Taxable income < Accounting profit

A is correct

what do formula do you use for a counting example that order matters?

Permutation

a trader buys a stock at $64 on margin with a leverage ratio of 2.5 and a maintenance margin of 30%. At what price will a margin call most likely occur at ? A.) $36.57 B.) $54.86 C.) $44.80

(((1- (1/ leverage ratio) / 1- maintenance margin)) *( stock price B is correct

there is a 60% chance I get laid this in the next 10 days. what is the probability that i get laid in exactly 6 of those 10 days?

(10!/10!-6!) *6!) * (0.60^6) * (0.4^4) 0.60 chance of getting laid in the amount of days i will get laid 1-0.6 = 0.4^(10-6) 3,628,800/17,280 = 210*0.0466*0.0256 0.2505 <-- answer

there is a 80% chance of rain in the next 6 days. what is the probability that it will rain on exactly two of those days?

(6!/(6!-2!) * 2!) * 0.8^2 * 0.2^4 0.8^2 is the probability that it will rain on two of the 6 days 0.2^4 is the probability that it wont rain on 4 of those 6 days x = 0.01536

what is the equation for money multiplier?

1/ reserve ratio

there is three firms in a industry that have sales of 4 million, 7 million and 9 million. what is the three firm concentration ratio?

4+7+9 = 20 4/20^2 + 7/70^2+9/20^2 = 0.04 + .1225 + .2025 = 0.365

According to the recommended procedures for compliance with CFA Institute Standard V(C): Record Retention, who is most likely responsible for maintaining the records that support investment actions? A.) The firm B.) Research analysts C.) The chief compliance officer

A

An analyst is comparing a company that uses the LIFO inventory cost method to companies that use FIFO for inventories. The analyst should adjust the LIFO firm's cost of goods sold by subtracting the: A)change in the LIFO reserve. B)LIFO reserve, net of tax. C)LIFO reserve.

A

Comparing a company's ratios with those of its competitors is best described as: A)cross-sectional analysis. B)common-size analysis. C)longitudinal analysis.

A

Which of the following multiples is most useful when comparing companies with significant differences in capital structure? A.) EV/EBITDA B.) Price-to-book ratio C.) Price-to-cash flow ratio

A

the stage that involves research and development of a product is the __________ stage A.) seed stage. B.) mezzanine stage. C.) angel investing stage.

A

Overloading distribution channels ("channel stuffing") would understate: A.) inventories. B.) accounts receivable. C.) revenues.

A "Channel stuffing," or inducing customers to buy more than usual, will produce an overstatement of revenues, which may be corrected in future periods if product is returned. Returned product in future periods would tend to understate inventories in the current period.

Arbitrage activity will most likely be higher in securities markets: A.) with no restrictions on short selling. B.) that are efficient. C.) with high information acquisition costs.

A A is correct. Short selling helps in price discovery. Arbitrageurs benefit from pricing discrepancies (inefficiencies); therefore, arbitrage activity will be higher in markets with no restrictions on short selling.

An industry characterized by rising volumes, improving profitability, falling prices, and relatively low competition among companies is most likely in which of the following life-cycle stages? A.) Growth B.) Mature C.) Embryonic

A B is incorrect. In the mature stage there will be little or no growth and relatively stable demand for products. C is incorrect. In the embryonic stage there will be slowing growth and high prices.

An analyst has gathered the following information about a firm: Net sales of $500,000. Cost of goods sold = $250,000. EBIT of $150,000. EAT of $90,000. What is this firm's operating profit margin? A)30%. B)50%. C)18%.

A Operating profit margin = (EBIT / net sales) = ($150,000 / $500,000) = 30%

Maria Valdes, CFA, is an analyst for Venture Investments in the country of Newamerica, which has laws prohibiting the acceptance of any gift from a vendor if the gift exceeds US $250. Valdes has evidence that her Venture Investments colleague, Ernesto Martinez, CFA, has been receiving gifts from vendors in excess of US $250. Valdes is obligated to: A)disassociate herself from the activity, and urge Venture to persuade Martinez to cease the activity. B)disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute of the violation. C)disassociate herself from the activity, urge Venture to persuade Martinez to cease the activity, and inform CFA Institute and regulatory authorities of the violation.

A Standard I(A), Knowledge of the Law requires members who have knowledge of colleagues engaging in illegal activities to disassociate from the activity and urge their firms to persuade the individual to cease such activity. Reporting to regulatory authorities may be prudent in certain circumstances, but is not required. Reporting to CFA Institute is not required.

Which of the following statements best describes the impact of a valuation allowance on the financial statements? A valuation allowance: A)reduces reported income, reduces assets, and reduces equity. B)reduces reported income, increases liabilities, and reduces equity. C)increases reported income, reduces assets, and reduces equity.

A A valuation allowance is a contra account (offset) against deferred tax assets that reflects the likelihood that the deferred tax assets will never be realized. The establishment of a valuation allowance reduces reported income, offsets (reduces) assets, and reduces equity.

A firm is considering a project that would require an initial investment of THB270 million (Thai baht). The project will help increase the firm's after-tax net cash flows by THB30 million per year in perpetuity, and it is found to have a negative NPV of THB20 million. The IRR (%) of the project is closest to: A.) 11.1%. B.) 10.3%. C.) 12.0%.

A 0 = -270 + (30/IRR) IRR = 11.1%

Suppose that JPK, Inc., paid dividends of $80,000 to its preferred shareholders and $40,000 to its common shareholders during 2004. The company had 20,000 shares of common stock issued and outstanding on January 1, 2004, issued 7,000 more shares on June 1, 2004, and paid a 10% stock dividend on August 1, 2004. Assuming that JPK had $150,000 in net income, what is the firm's basic earnings per share (EPS) for 2004? A)$2.64. B)$2.91. C)$2.71.

A 1/1/00 22,000 shares (adjusted for 10% stock dividend) × 12 months = 264,000 6/1/00 7,700 shares (adjusted for 10% stock dividend) × 7 months = 53,900 Total share month = 317,900 Average shares = 317,900 / 12 = 26,492 Basic EPS = ($150,000 − $80,000) / 26,492 = 2.64

Carrying value amount = 36,000 Undiscounted expected future cash flows = 38,000 Present value of expected future cash flows = 32,000 Fair value if sold = 34,000 Costs to sell = 4,000 Which of the following statements is most accurate? The patent is impaired under: A.) IFRS only. B.) both IFRS and US GAAP. C.) US GAAP only.

A is corrct for IFRS recoverable amount equals higher of value in use (the present value of the expected future cash flows) = $32,000 or fair value minus costs to sell = $34,000 - 4,000 = $30,000 which is 32,000 this is then compared to the carrying amount. 32,000<36,000 so the asset is impaired ------------------------------------------------- Under US GAAP, to assess impairment, the carrying value ($36,000) is compared with the undiscounted expected future cash flows ($38,000). In this case, the carrying value is lower so the patent is not impaired.

A lessee that enters into a finance lease will report the: A.) lease payable on its balance sheet. B.) full lease payment on its income statement. C.) full lease payment as an operating cash flow.

A is correct

All else being equal, if the purchase price of inventory is increasing, a company that accounts for its inventory under last-in, first-out (LIFO) instead of first-in, first-out (FIFO) is most likely to have a: A.) higher debt-to-equity ratio. B.) lower net cash flow from operating activities. C.) lower market valuation of its common equity.

A is correct

Equity return distributions are best described as being: A.) leptokurtic. B.) platykurtic. C.) mesokurtic.

A is correct

If a firm restructures and wants to remain compliant with the GIPS standards, it should most likely: A.) maintain the historical performances for all composites. B.) alter the historical performances within existing composites. C.) create all new composites with proper disclosures regarding the reorganization.

A is correct

In the binomial model, the difference between the up and down factors best represents the: A.) volatility of the underlying. B.) moneyness of an option. C.) pseudo probability.

A is correct

In the context of early stage financing most likely supports: A.) initial commercial production and sales. B.) product development and/or marketing efforts. C.) transformation of an idea into a business plan.

A is correct

LIFO liquidation may result when: A)purchases are less than goods sold. B)cost of goods sold is less than the available inventory. C)purchases are more than goods sold.

A is correct

The CFA Institute Code of Ethics and Standards of Professional Conduct are most likely designed to foster and reinforce a culture of: A.) responsibility and professionalism. B.) regulatory compliance. C.) service to the firm.

A is correct

The first stage of financing at which a venture capital fund most likely invests is the: A.) seed stage. B.) mezzanine stage. C.) angel investing stage.

A is correct

The role of the International Organization of Securities Commissions (IOSCO) is best described as: A.) promoting cross-border cooperation and uniformity in securities regulation. B.) enforcing financial reporting requirements for entities participating in capital markets. C.) promoting the use of International Financial Reporting Standards (IFRS) and the convergence of national accounting standards.

A is correct

Two underlying assumptions of financial statements, according to the IASB conceptual framework, are: A)going concern and accrual accounting. B)historical cost and going concern. C)accrual accounting and historical cost.

A is correct

Under US GAAP, interest paid is most likely included in which of the following cash flow activities? A.) Operating only B.) Financing only C.) Either operating or financing

A is correct

Under IFRS, dividends received are least likely classified as which type of cash flow on the cash flow statement? A.) Financing B.) Operating C.) Investing

A is correct dividends received are classified as operating or investing for IFRS

Carrying inventory at a value above its historical cost would most likely be permitted if: A.) the inventory was held by a producer of agricultural products. B.) financial statements were prepared using US GAAP. C.) the change resulted from a reversal of a previous write-down.

A is correct A is correct. IFRS allow the inventories of producers and dealers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products to be carried at net realisable value even if above historical cost. (US GAAP treatment is similar.)

Accounting profit (earnings before taxes) = $250,000 Taxable income = $215,000 Tax rate = 30% Income taxes paid in year = $61,200 Deferred tax liability, start of year = $82,400 Deferred tax liability, end of year = $90,650 The income tax expense reported on the current year's statement of earnings is closest to: A.) $72,750. B.) $69,450. C.) $64,500.

A is correct A is correct. Income tax expense equals income tax payable (the tax rate multiplied by the taxable income) plus the increase in the deferred tax liabilities. (0.30 × $215,000) + ($90,650 - $82,400) = $64,500 + $8,250 = $72,750

An active manager will most likely short a security with an expected Jensen's alpha that is: A)negative. B)positive. C)zero.

A is correct A security's expected Jensen's alpha is the difference between an active manager's estimate of a security's expected return and the CAPM expected return. A security that is expected to have a negative alpha will plot below the SML (i.e., the security is overvalued and should be sold or sold short).

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: A.) 10 years of GIPS-compliant performance. B.) 5 years of GIPS-compliant performance. C.) 15 years of GIPS-compliant performance.

A is correct After a firm presents a minimum of five years of GIPS-compliant performance, the firm must present an additional year of performance each year, building up to a minimum of 10 years of GIPS-compliant performance.

In a securitization structure, credit tranching allows investors to choose between: A.) subordinated bonds and senior bonds. B.) extension risk and contraction risk. C.) partially amortizing loans and fully amortizing loans.

A is correct B is for securitized assetes

An investment policy statement that includes a return objective of outperforming the FTSE 100 by 120 basis points is best characterized as having a(n): A.) relative return objective. B.) absolute return objective. C.) arbitrage-based return objective.

A is correct Because the return objective specifies a target return relative to the FTSE 100 Index, the objective is best described as a relative return objective.

for a company using LIFO for rising prices how will the Debt to equity ratio be effected compared to FIFO? A.) Higher B.) Lower C.) the same

A is correct C - low Inv. turnover - High Gross profit margin - Low D/E - High Assets- Low

Revenue = £800,000 Variable cost = $400,000 Fixed cost = $200,000 Operating income = $200,000 Interest = $60,000 Net income =$ 140,000 The firm's degree of Financial leverage (DTL) is closest to: A.) 1.43. B.) 2.00. C.) 2.86.

A is correct DFL = Operating income/Net income = £200,000/£140,000 = 1.43

A 30-day $10,000 US Treasury bill sells for $9,932.40. The discount basis yield (DBY) is closest to: A.) 8.11%. B.) 8.17%. C.) 8.28%.

A is correct FV-PV/FV * 360/30

The management fee of a private equity fund is most likely based on: A.) committed capital. B.) remaining capital. C.) invested capital.

A is correct Hedge funds are based on invested capital if your in a committed relationship its private

MJ Inc. reported cost of goods sold of $80,000 for the year under the LIFO inventory valuation method. MJ had a beginning LIFO reserve of $8,000 and an ending LIFO reserve of $11,000. Cost of goods sold under the FIFO inventory valuation method is: A)$77,000. B)$83,000. C)$91,000.

A is correct Life COGS - Change in Lifo reserve COGS = 80,000 − (11,000 − 8,000) = 77,000.

A key distinction between commercial mortgage-backed securities (CMBSs) and residential mortgage-backed securities (RMBSs) is that CMBSs most likely: A.) have balloon maturities. B.) have amortizing principal. C.) do not have call protection.

A is correct Many commercial loans backing CMBSs are balloon loans that require a substantial principal repayment at maturity of the loan. If the borrower fails to make the balloon payment, the borrower is in default. CMBSs generally do not have amortizing principal as RMBSs do, and they do offer call protection.

When the return on equity equation (ROE) is decomposed using the original DuPont system, what three ratios comprise the components of ROE? A)Net profit margin, asset turnover, equity multiplier. B)Gross profit margin, asset turnover, equity multiplier. C)Net profit margin, asset turnover, asset multiplier.

A is correct NI/Rev * Rev/TA* TA/TE

if you decrease the useful life of a asset what is the effect on depreciation. A.) depreciation will be higher B.) depreciation will be lower

A is correct if you decrease the useful life or salvage value the depreciation expense will increase useful life and salvage value have inverse relationship with depreciation expense

A market structure characterized by homogeneous/standardized product differentiation is best described as: A.) perfect competition and oligopoly. B.) monopolistic competition. C.) monopoly.

A is correct perfect competition --> Homogeneous/standardized monopolistic -->Differentiated oligopoly -->Homogeneous/standardized monopoly --> unique product

LIFO reserve is most likely to increase when inventory unit: A.) costs are increasing. B.) costs are decreasing. C.) levels are decreasing.

A is correct. LIFO reserve is the FIFO inventory value less the LIFO inventory value. In periods of rising inventory unit costs, the carrying amount of inventory under FIFO will always exceed the carrying amount of inventory under LIFO.

A company that is required to raise equity capital to continue to operate as a going concern is most likely doing so to: A.) improve capital adequacy ratios. B.) fund capital expansion projects. C.) purchase long-lived assets.

A is correct. In cases in which a company must raise capital to ensure it can continue to operate as a going concern, capital is most likely raised to fulfill regulatory requirements, improve capital adequacy ratios, or ensure that debt covenants are met.

Compared with its market-value-weighted counterpart, a fundamental-weighted index is least likely to have a: A.) momentum effect. B.) contrarian effect. C.) value tilt.

A is correct. The momentum effect is a characteristic of a market-capitalization-weighted index, not a fundamental index.

Market risk premium --> 7.0% Risk-free rate --> 2.0% Comparable firm return --> 10.4% Comparable firm debt-to-equity ratio --> 1.0 Comparable firm tax rate --> 40.0% The firm's unleveraged beta is closest to: 0.75. 1.20. 1.05.

A is correct. Find the comparable firm's beta: (10.4% - 2.0%)/7.0% = 1.20. Unlever the comparable firm's beta: βL,comparable/[1 + (1 - Tax rate) × Debt-to-equity ratio] 1.20/[1 + (1 - 40%) × 1.0] = 0.75.

A private equity firm sells a portfolio company to a buyer that is active in the same industry as the portfolio company. This transaction is best described as a(n): A.) trade sale. B.) secondary sale. C.) initial public offering.

A is correct. A trade sale is the sale of a portfolio company to a strategic buyer, such as a company that is active in the same industry. B is incorrect. A secondary sale is a sale to another private equity firm.

A decrease in average weekly initial claims for unemployment is most likely indicative of: A.) an economic recovery beginning. B.) the business cycle reaching its peak. C.) an economic downturn beginning.

A is correct. Average weekly initial claims for unemployment insurance is a leading indicator of economic activity, and a decrease in it is an indication of rehiring at the start of a recovery.

The Global Investment Performance Standards (GIPS) were developed for the benefit of: A.) prospective clients. B.) regulators. C.) broker/dealers.

A is correct. The GIPS standards benefit two main groups: investment management firms and prospective clients. GIPS presentations allow prospective clients to know that the track record of a prospective GIPS compliant fund manager is complete and fairly presented.

. After issuance, the rate demanded by the purchaser of a bond is best described as the: A.) market rate of interest. B.) effective interest rate. C.) coupon rate.

A is correct. The market rate of interest is the rate demanded by the bond purchaser given the risks associated with future cash payment obligations of the particular bond issue. effective rate is the rate at the time of issuance

Which of the following statements is most accurate? A.) All legal behavior is ethical behavior. B.) Some ethical behavior may be illegal. C.) Legal standards represent the highest standard

B is correct

If the probability of an event is 0.10, what are the odds for the event occurring? A)One to nine. B)One to ten. C)Nine to one.

A]] The answer can be determined by dividing the probability of the event by the probability that it will not occur: (1/10) / (9/10) = 1 to 9. The probability of the event occurring is one to nine, i.e. in ten occurrences of the event, it is expected that it will occur once and not occur nine times.

A multivariate distribution: A)gives multiple probabilities for the same outcome. B)specifies the probabilities associated with groups of random variables. C)applies only to binomial distributions.

B

An increase in notes payable would be classified as: A)having no cash flow impact. B)financing cash flow. C)investing cash flow.

B

Characteristics of monopolistic competition include all of the following EXCEPT: A)differentiated products. B)high barriers to entry. C)large numbers of independent sellers.

B

In Fama and French's multifactor model, the expected return on a stock is explained by: A)excess return on the market portfolio, book-to-market ratio, and price momentum. B)firm size, book-to-market ratio, and excess return on the market portfolio. C)firm size, book-to-market ratio, and price momentum.

B

In calculating the numerator for diluted earnings per share, the dividends on convertible preferred stock are: A)added to earnings available to common shareholders with an adjustment for taxes. B)added to earnings available to common shareholders without an adjustment for taxes. C)subtracted from earnings available to common shareholders without an adjustment for taxes.

B

The use of client brokerage by an investment manager to obtain certain products and services to aid the manager in the investment decision-making process is called: A)trading practices. B)soft dollar practices. C)quid pro quo practices.

B

The variance of returns of a security and the market portfolio are 0.25 and 0.09, respectively. If the covariance of security returns and market returns is 0.06, the security's beta is closest to: A.) 0.24. B.) 0.67. C.) 0.40.

B .6/9 = .67

Accrued interest on a bond that is sold between coupon dates is: A)paid to the buyer. B)paid to the seller. C)split between the buyer and seller.

B Accrued interest from the most recent coupon payment date to the settlement date is owed to the seller of a bond and is included in the full price.

A central bank follows an inflation targeting monetary policy. If the permissible band is plus-or-minus 2% around the target inflation rate, the central bank is most likely to choose a target inflation rate of: A)1%. B)3%. C)0%.

B Because they consider deflation to be disruptive to an economy, central banks typically choose inflation targets and bands that do not include a negative rate of inflation.

Most recent year's dividend per share = $1.47 Next year's estimate of earnings per share = $4.00 Estimate of long-run return on equity (ROE) = 15% Estimate of long-run dividend payout ratio = 40% Investors' required rate of return = 12% The company's justified forward P/E is closest to: A.) 10.0. B.) 13.3. C.) 20.0.

B Justified forward P/E: P 0/E 1 = p/(r - g) p = Payout ratio = 40% (given); r = Required rate of return = 12% (given) g = (1 - Dividend payout ratio) × ROE = (1 - 0.40) × 15 = 9% P 0/E 1 = p/(r - g) = 0.40/(0.12 - 0.09) = 13.3×

The 3-year spot rate is 10%, and the 4-year spot rate is 10.5%. What is the 1-year forward rate 3 years from now? A)11.0%. B)12.0%. C)10.0%.

B [(1 + S4)^4 / (1 + S3)^3] - 1 = 12.01% = 12%.

All else being equal and ignoring tax effects, compared with using the straight-line method of depreciation, the use of an accelerated method of depreciation in the early years of an asset's life would most likely result in a decrease in the firm's: A.) asset turnover ratio. B.) shareholders' equity. C.) cash flow from operations.

B B is correct. An accelerated method of deprecation produces greater expenses in the early years and lowers net income, which in turn lowers the retained earnings, resulting in a decrease in shareholders' equity. A is incorrect. An accelerated depreciation method will lower total net assets in the early years by more than the straight-line method, increasing total asset turnover (for a given sales level).

A decrease in the riskless rate of interest, other things equal, will: A)decrease call option values and decrease put option values. B)decrease call option values and increase put option values. C)increase call option values and decrease put option values.

B Risk free rate had a direct relationship with calls and a inverse relationship with puts

A deferred Liability asset occurs when... A.) Taxable income > Accounting profit B.) Taxable income < Accounting profit

B is correct

A derivative can best be described as a financial instrument that: A.) duplicates the underlying asset's performance. B.) transforms the underlying asset's performance. C.) passes through the underlying asset's returns.

B is correct

Business risk most likely incorporates operating risk and: A.) financial risk. B.) sales risk. C.) interest rate risk.

B is correct

For financial assets classified as trading securities, how are unrealized gains and losses reflected in shareholders' equity? A.) they are not recognized B.) they flow through retained earnings C.) they are a component of accumulated other comprehensive income

B is correct

In the context of venture capital financing, seed-stage financing most likely supports: A.) initial commercial production and sales. B.) product development and/or marketing efforts. C.) transformation of an idea into a business plan.

B is correct

The primary goal of both monetary and fiscal policy focuses on balancing economic growth and: A.) income distribution. B.) inflation. C.) employment.

B is correct

The primary purpose of bond covenants is to: A)clearly define the responsibilities of the borrower and the lender. B)protect bondholders from the actions of equity owners. C)define bond characteristics.

B is correct

The slope of the capital market line (CML) is a measure of the level of: A)risk over the level of excess return. B)excess return per unit of risk. C)expected return over the level of inflation.

B is correct

The structural deficit is equal to the budget deficit: A.) adjusted for inflation. B.) that would exist at full employment. C.) excluding the impact of automatic stabilizers.

B is correct

The value at risk of an alternative investment is best described as the: A.) probability of losing a fixed amount of money over a given time period. B.) minimum amount of loss expected over a given time period at a given probability level. C.) time period during which a fixed amount is lost at a given probability level.

B is correct

Under IFRS, the costs incurred in the issuance of bonds are most likely: A.) expensed when incurred. B.) included in the measurement of the bond liability. C.) deferred as an asset and amortized on a straight-line basis.

B is correct

Under U.S. GAAP, the actual coupon payment on a bond is reported on the statement of cash flow as: A)an investing cash outflow. B)an operating cash outflow. C)a financing cash outflow.

B is correct

Which of the following is most likely a characteristic of a country that follows the dollarization exchange rate regime? The country: A.) is able to monetize its domestic debt. B.) has the currency credibility of the US dollar. C.) has a term structure similar to that of the United States.

B is correct

Which of the following is most likely a private equity strategy? A.) Merger arbitrage B.) Venture capital C.) Quantitative directional

B is correct

Which of the following statements best describes a feature of an option contract? In an option contract: A.) both the long and the short can default. B.) only the short can default. C.) only the long can default.

B is correct

For two European put options that differ only in their time to expiration, which of the following is most accurate? The longer-term option: A)is worth at least as much as the shorter-term option. B)can be worth less than the shorter-term option. C)is worth more than the shorter-term option.

B is correct For European puts, it is possible that the longer term option can be less valuable than a shorter-term option.

A manager wants to test whether two normally distributed and independent populations have equal variances. The appropriate test statistic for this test is a: A)chi-square statistic. B)F-statistic. C)t-statistic.

B is correct For a test of the equality of two variances, the appropriate test statistic test is the F-statistic.

Oregon Corp.'s stock transactions during the year were as follows: January 1: 320,000 shares outstanding. April 1: 1-for-2 reverse stock split occurred. July 1: Acquisition of Smith, Inc. in exchange for issuance of 60,000 shares. October 1: 30,000 shares issued for cash. What is Oregon's weighted average number of shares outstanding? A)250,000. B)197,500. C)167,500.

B is correct January 1:initial shares = 160,000 × 12 = 1,920,000 July 1:Smith acquisition = 60,000 × 6 =360,000 October 1:cash issuance = 30,000 × 3 =90,000 -----------------------------------Total:2,370,000 2370000/12 = 197,500

Which of the following items is NOT in the numerator of the quick ratio? A)Cash. B)Inventory. C)Receivables.

B is correct Quick ratio = (cash + marketable securities + receivables) / current liabilities

Earnings per share, 2013 = $2.50 Dividend payout ratio, 2013 = 60% Dividend growth rate expected during 2014 and 2015 = 25% Dividend growth rate expected after 2015 = 5% Investors' required rate of return = 12% Using the two-stage dividend discount model, the value per share of this common stock is closest to: $38.70. $31.57. $28.57.

B is correct V = 1.50 (1.25)/ 1.12 + 1.5 (1.25)^2/1.12^2 + {(1.5(1.25^2) (1.05)/ 0.12-0.05))/ 1.12^2} = $1.67 + $1.87 + $28.03 = $31.55

Which of the following most likely contributes to a current account deficit? A.) High taxes. B.) Low private savings. C.) Low private investment.

B is correct (S-I) current account deficit occurs when there is high private investment or or low private savings

Over a period of 16 months, an investor has earned a return of 12%. The investor's annualized return is closest to: A.) 9.38%. B.) 8.87%. C.) 9.00%.

B is correct 1.12^(12/16) - 1 = 0.0887 or = 8.87%

Which action is most likely considered a secondary source of liquidity? A.) Increasing the efficiency of cash flow management B.) Renegotiating current debt contracts to lower interest payments C.) Increasing the availability of bank lines of credit

B is correct A and C are primary sources

If the prices of substitute resources decrease, the demand for a given resource will most likely: A.) remain unchanged. B.) decrease. C.) increase.

B is correct A decrease in the price of a substitute resource would encourage producers to use the substitute resource thus reducing demand for the resource in question.

**know for the exam** Revenue = 500 COGS = 100 Decrease in A/R = 20 Increase in ending Inv. = 15 Increase in A/P = 40 calculate the cash received from customers and paid to suppliers Cash received from customers ---- Cash paid to suppliers A.) --------------------500m ----------- 60 m B.) ---------------------520m ----------- 75m C.) ----------------------535 ------------ 85 m

B is correct Cash received from customers = revenue (500) + decrease in inv. (20) = 520 cash paid to suppliers = COGS + 15 - 40 = 75 COGS + (increase in inv.) = Purchases from suppliers + decrease in A/P - (increase in A/P) = Cash paid to suppliers

Revenue = £800,000 Variable cost = $400,000 Fixed cost = $200,000 Operating income = $200,000 Interest = $60,000 Net income =$ 140,000 The firm's degree of Operating leverage (DTL) is closest to: A.) 1.43. B.) 2.00. C.) 2.86.

B is correct DOL = (Revenue - Variable cost)/Operating Income = [(£800,000 - £400,000)/£200,000] = 2.00

A debt covenant is most likely to restrict a firm from: A)decreasing its common dividends. B)repurchasing common shares. C)issuing new common shares.

B is correct Debt covenants exist to protect creditors. Repurchasing common shares is a use of cash that rewards equity investors but might harm creditors by reducing the firm's solvency. Decreasing dividends or issuing new shares would increase the cash available to repay creditors.

When compared to modified duration, effective duration: A)is equal to modified duration for callable bonds but not putable bonds. B)factors in how embedded options will change expected cash flows. C)places less weight on recent changes in the bond's ratings.

B is correct Effective duration considers expected changes in cash flow from features such as embedded options.

A casual laborer has a 70% chance of finding work on each day that she reports to the day labor marketplace. What is the probability that she will work three days out of five? A)0.3192. B)0.3087. C)0.6045.

B is correct P(3) = 5! / [(5 - 3)! × 3!] × (0.7^3) × (0.3^2) = 0.3087 = 10 * 0.343 × 0.09 = .3087

**know for the exam** **review the inventory section of Fin. reporting** Costs that are included in the balance sheet value of inventory most likely include: A)Administrative overhead. B)Manufacturing overhead. C)Selling costs.

B is correct Product costs that are capitalized to inventory include purchase cost, conversion or manufacturing costs (including labor and overhead), and other costs to bring inventory to its present state and location. Period costs recognized as expenses when incurred include abnormal waste, storage costs not required for production, selling costs, and administrative overhead.

For a lessor that reports under U.S. GAAP, a lease is classified as an operating lease if: A)the fair value of the asset is greater than the sum of the lease payments and the asset's expected residual value. B)it cannot be classified as a sales-type lease or a direct financing lease. C)ownership risks are not substantially transferred to the lessee.

B is correct Under U.S. GAAP accounting standards for lessors, a lease is classified as an operating lease if it cannot be classified as either a sales-type lease or an operating lease.

Units ------ Unit Price Beginning Inventory --> 559 --- $1.00 Purchases --> 785 --- $5.00 Sales --> 848 --- $15.00 Cost of goods sold using the weighted average cost method is closest to: A)$3,990. B)$2,830. C)$2,000.

B is correct Weighted average cost = [559($1) + 785($5)] / (559 + 785) = $3.3363 COGS = Units sold × weighted average cost = 848 × 3.3363 = $2,829.19

**know for the exam** During periods of declining prices, which inventory method would result in the highest net income? A)Average Cost. B)LIFO. C)FIFO.

B is correct When prices are declining and LIFO is used the COGS is smaller than if FIFO is used leading to a larger net income.

a deferred tax asset would most likely be created by A.) straight-line depreciation being used for financial reporting and double declining balance being used for tax purposes B.) differing treatment in warranty expenses for taxes and for financial reporting C.) utilizing a tax loss carry forward to reduce a given years tax payable

B is correct if a question references warranty expenses ITS ALWAYS A DEFERRED TAX ASSET A is a example of a deferred tax liability

Relative to spot markets, one key feature of derivatives markets is: A.) high transaction costs. B.) low capital requirements. C.) restrictions on short selling.

B is correct low transaction costs and low capital requirements

The following sample of 10 items is selected from a population. The population variance is unknown 10....20.....−8......2.......−9........5.........0......−8.......3............21 The standard error of the sample mean is closest to: A.) 3.60. B.) 3.43. C.) 10.84.

B is correct st. dev/ sq root of N

when being audited which is the best opinion a company can receive? A.) Qualified opinion B.) Unqualified opinion C.) adverse opinion D.) Disclaimer of opinion

B is correct --> Unqualified opinion is equal to clean opinion A means its okay but unqualified opinion means there is a problem wiht the accounts adverse opinion means there is alot of problems and the accounts arent true Disclaimer of opinion is to unable to make a opinion due to lack of evidence

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: A.) firewalls. B.) selective disclosure. C.) personal trading limitations.

B is correct as selective disclosure occurs when companies discriminate in making material nonpublic information public. Corporations that disclose information on a limited basis create the potential for insider-trading violations. the other two are widely used

Financial risk is least likely affected by: A.) debentures. B.) dividends. C.) long-term leases.

B is correct. By taking on fixed obligations, such as debt (including debentures) and long-term leases, a company increases its financial risk. Dividends will not increase financial risk.

A member of the labor force quit her job last week and will begin a new job next week. During this interim period, for the purposes of calculating unemployment statistics, this person is most likely classified as: A.) hidden unemployed. B.) frictionally unemployed. C.) voluntarily unemployed.

B is correct. Frictional unemployment is short term and transitory in nature; it includes people who are "between jobs," as in this case, and those who are not working because they are taking time to search for a job that better matches their skills, interests, and other preferences.

For a US investor, which of the following statements concerning investing in depository receipts (DRs) is leastaccurate? A.) Investing in DRs could provide arbitrage opportunities and entail currency risk. B.) Investors in unsponsored DRs would have the same voting rights as the direct owners of common shares. C.) Sponsored DRs are subject to greater reporting requirements than unsponsored DRs.

B is correct. Investors of unsponsored DRs would not have the same voting rights as the direct owners of common shares because the depository bank retains the voting rights. C is incorrect because it is an accurate statement. Sponsored DRs are subject to greater reporting requirements than unsponsored DRs. In the United States, sponsored DRs must be registered with the SEC.

Patent fees and legal services are recorded in which of the following balance of payments components? A.) Capital account. B.) Current account. C.) Financial account.

B is correct. The current account measures the flows of goods and services (including income from foreign investments). Patent fees and legal services are both captured in the services sub-account of the current account.

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 mostappropriate accounting treatment for the related costs incurred in this project is to: A.) capitalize costs directly related to the development. B.) expense costs until technical feasibility has been established. C.) expense them as incurred.

B is correct. Under IFRS, research and development costs are expensed until certain criteria, including demonstration of technical feasibility, have been met.

The non-controlling or minority interests found in the equity section of the balance sheet are best described as the equity interests: A.) held by the corporation in other entities that it does not control, but has significant influence. B.) of minority shareholders in subsidiaries that have been consolidated. C.) of minority shareholders of the corporation who have significant influence, but not control.

B is correct. Non-controlling interests found in the equity section represent the equity interests of minority shareholders in non-wholly-owned subsidiaries that have been consolidated.

The benefits of an ethical decision-making framework would least likely include: A.) making wise decisions. B.) focusing on immediate consequences. C.) limiting unintended consequences.

B is correct. The benefits of an ethical decision-making framework are least likely to include focusing on immediate consequences. The framework allows the decision maker to focus on multiple perspectives and does not limit the decision maker to a short-term focus.

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: A.) complements. B.) substitutes. C.) inferior goods.

B is correct. The cross-price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in the price of a substitute or complement. If the cross-price elasticity of demand is positive, the goods are substitutes. In this case, the 4 percent decline in quantity of pears is divided by the 3 percent decline in the price of apples, which is a positive number: -4/-3 = +1.33 A is incorrect because the cross-price elasticity of demand between pears and apples is positive. Complements have a negative cross-price elasticity of demand.

The effective convexity of a bond is a measurement of the effect of a change in: A.) horizon yield. B.) the yield to maturity. C.) a benchmark yield curve.

C

The optimal portfolio in the Markowitz framework occurs when an investor achieves the diversified portfolio with the: A)lowest risk. B)highest return. C)highest utility.

C

Selected information from Baltimore Corp's financial activities in the year 2004 is as follows: Net income was $4,200,000. 750,000 shares of common stock were outstanding on January 1. The average market price per share was $50 in 2004. Dividends were paid in 2004. 10,000 warrants, which allowed the holder to purchase 10 shares of common stock for each warrant held at a price of $40 per common share, were outstanding the entire year. Baltimore's diluted earnings per share (Diluted EPS) for 2004 is closest to: A)$5.60. B)$4.94. C)$5.45.

C Baltimore's basic earnings per share (EPS) (net income / weighted average shares outstanding) for 2004 was $4,200,000 / 750,000 = $5.60. To calculate diluted EPS, we use the treasury stock method to account for the warrants: Number of common shares created if options are exercised = 10,000 × 10 = 100,000 Cash inflow if warrants are exercised = $40 × 100,000 = $4,000,000 Shares purchased with these funds = $4,000,000 / 50 = 80,000 Net increase in shares outstanding = 100,000 - 80,000 = 20,000 Diluted EPS = $4,200,000 / (750,000 + 20,000) = $5.45.

Under US GAAP, which of the following would require the lessee to classify a lease as a capital lease? A.) The term is 60% of the useful life of the asset. B.) The lease contains an option to purchase the asset at fair value. C.) The present value of the lease payments is 95% of the fair value.

C C is correct. If the present value of the lease payments is greater than 90% of the fair value of the asset, the lease is considered a capital lease. A lease with a term that is 75% or more of the useful life of the asset is deemed to be a capital lease. The option to purchase the asset must be deemed to be cheap (bargain purchase option), not just include the option to purchase the asset.

The relative strength index for a stock stands at 75. This reading is best described as an indication that the stock is A.) neutral. B.) oversold. C.) overbought.

C C is correct. The relative strength index (RSI) is a momentum oscillator and provides information on whether or not an asset is overbought or oversold. An RSI greater than 70 indicates that a stock is overbought; an RSI lower than 30 suggests that a stock is oversold.

A company prepares its financial statements under International Financial Reporting Standards. The company's cash flow statement will classify interest paid as either an: A)investing or financing cash flow. B)operating or investing cash flow. C)operating or financing cash flow.

C IFRS allows interest paid to be reported in either the operating or financing section of the cash flow statement. U.S. GAAP requires interest paid to be reported in the operating section of the cash flow statement.

Compared to issuing a bond at par value, and holding all else equal, when a company issues a bond at a premium, its effect on the debt/equity ratio will be: A)an increasing trend in the ratio over the life of the bond. B)no effect on the ratio over the life of the bond. C)a decreasing trend in the ratio over the life of the bond.

C Net book value of debt decreases over the life of the bond because the premium amortizes. Stockholders' equity increases over the life of the bond because interest expense decreases each period. This results in a decreasing trend in the debt/equity ratio over the life of the bond, compared to the trend if a bond had been issued at par value.

Which of the following items would NOT be included in cash flow from investing? A)Buying or selling a building. B)Proceeds related to acquisitions. C)Selling stock of the company.

C Selling stock of the company would be a financing cash flow.

If the price of World Cup Soccer tickets increases from $40 a ticket to $50 a ticket and the quantity demanded of tickets stays the same, demand for the tickets is: A)elastic, but not perfectly elastic. B)inelastic, but not perfectly inelastic. C)perfectly inelastic.

C Since the quantity of tickets demanded stayed the same after the price changed, the demand curve would have to be vertical which is a perfectly inelastic demand curve.

If the standard deviation of the market's returns is 5.8%, the standard deviation of a stock's returns is 8.2%, and the covariance of the market's returns with the stock's returns is 0.003, what is the beta of the stock? A)1.07. B)0.05. C)0.89.

C The formula for beta is: (Covstock,market)/(Varmarket), or (0.003)/(0.058)^2 = 0.89.

Which of the following is least likely a source of bias in CPI data? A)Quality changes B)Substitution C)Sample selection

C The three sources of bias associated with CPI data are: new goods, quality changes, and substitution.

Which of the following is a required financial statement disclosure for long-lived intangible assets under US GAAP? A.) The useful lives of assets B.) The reversal of impairment losses C.) Estimated amortization expense for the next five fiscal years

C is correct

A commodity market is in contango when futures prices are: A.) lower than the spot price. B.) the same as the spot price. C.) higher than the spot price.

C is correct

A one-period binomial model is useful for valuing options because it: A)considers the additional risk inherent in options. B)does not require an assumption about volatility. C)can account for contingent payoffs of options.

C is correct

An interpolated spread (I-spread) for a bond is a yield spread relative to: A)risk-free bond yields. B)benchmark spot rates. C)swap rates.

C is correct

Capital provided for companies moving toward operation but before commercial manufacturing and sales have occurred best describes which stage in venture capital investing? A.) Later stage B.) Seed stage C.) Early stage

C is correct

Common-size financial statements are most likely a component of which step in the financial analysis framework? A.) Collect data B.) Analyze/interpret data C.) Process data

C is correct

For which of the following assets is it most appropriate to test for impairment at least annually? A.) Land B.) A patent with a legal life of 20 years C.) A trademark with an indefinite expected life

C is correct

In the context of Angel investing, seed-stage financing most likely supports: A.) initial commercial production and sales. B.) product development and/or marketing efforts. C.) transformation of an idea into a business plan.

C is correct

Investors in commercial mortgage-backed securities (CMBS) face balloon risk, which is most likely a type of: A.) call risk. B.) contraction risk. C.) extension risk.

C is correct

Risk management is a process that can most likely be best described as: A.) minimizing risks while attempting to maximize returns. B.) forecasting the level of risk that can meet a defined required return. C.) defining a level of risk to be taken with the goal of maximizing the portfolio's value.

C is correct

The behavioral bias in which investors tend to avoid realizing losses but rather seek to realize gains is best described as: A.) mental accounting. B.) the gambler's fallacy. C.) the disposition effect.

C is correct

The management fee of a hedge fund is most likely based on: A.) committed capital. B.) remaining capital. C.) invested capital.

C is correct

Two-tailed and one-tailed tests have which of the following characteristics in common? A.) The null hypothesis can be stated as "not equal to". B.) Possible parameter values can be excluded from testing consideration. C.) Significance levels are used to establish rejection points.

C is correct

Under GAAP, the costs incurred in the issuance of bonds are most likely: A.) expensed when incurred. B.) included in the measurement of the bond liability. C.) deferred as an asset and amortized on a straight-line basis.

C is correct

When an ethical dilemma occurs, an investment professional should most likely first raise the issue with a: A.) mentor outside the firm. B.) professional body's hotline. C.) senior individual in the firm.

C is correct

Which of the following best distinguishes ethical conduct from legal conduct? Ethical conduct typically: A.) is narrow in scope. B.) follows an existing market practice. C.) considers and benefits multiple stakeholders.

C is correct

Which of the following statements is most accurate? A profession's code of ethics: A.) includes standards of conduct or specific benchmarks for behavior. B.) ensures that all members of a profession will act ethically at all times. C.) publicly communicates the shared principles and expected behaviors of a profession's members.

C is correct

Which of the following will most likely determine whether an individual will behave unethically? A.) The person's character B.) The person's internal traits and intrinsic motivation C.) External factors, such as environmental or cultural elements

C is correct

embryonic stage is characterized by A.) high growth, low prices B.) high competition, rising volumes C.) low growth, high prices D.) low competition, low volumes

C is correct

Which of the following statements regarding hypothesis testing is least accurate? A)The significance level is the risk of making a type I error. B)A type II error is the acceptance of a hypothesis that is actually false. C)A type I error is acceptance of a hypothesis that is actually false.

C is correct A type I error is the rejection of a hypothesis that is actually true.

A line that represents the possible portfolios that combine a risky asset and a risk free asset is most accurately described as a: A)capital market line. B)characteristic line. C)capital allocation line.

C is correct The line that represents possible combinations of a risky asset and the risk-free asset is referred to as a capital allocation line (CAL). The capital market line (CML) represents possible combinations of the market portfolio with the risk-free asset. A characteristic line is the best fitting linear relationship between excess returns on an asset and excess returns on the market and is used to estimate an asset's beta.

When compared with an option-free bond, which type of bond most likely offers a higher yield to bondholders? A.) Putable B.) Convertible C.) Callable

C is correct A callable bond gives the issuer the right to buy back the bond prior to maturity. This feature increases the reinvestment risk faced by bondholders, causing them to require a higher yield than for a similar non-callable bond.

Jan 1 = 10,000 shares Mar 1 = 3,000 issued July 1 = 20% stock dividend Nov 1 = 3,000 shares repurchased What is the weighted average number of shares at over the year? A.) $12,000 B.) $11,300 C.) $14,500

C is correct 10,000 *1.2 * 12 = 144,000 3,000 *1.2*10 = 36,000 -3,000 *2 = (6000) = 174,000 174,000 / 12 months = $14,500

**know for the exam** An investment of $20,000 will create a perpetual after-tax cash flow of $2,000. The required rate of return is 8 percent. What is the investment's profitability index? A.) 1.08. B.) 1.16. C.) 1.25.

C is correct 20,000/0.08 = 25000 profitability index = PV / initial investment 25,000/20,000 = 1.25

Earnings before interest and taxes (EBIT) is also known as: A)gross profit. B)earnings before income taxes. C)operating profit.

C is correct 34.76 +91.25- 45.62

Under International Financial Reporting Standards (IFRS), which of the following is most likely one of the general features underlying the preparation of financial statements? A.) Understandability B.) Timeliness C.) Consistency

C is correct A and B are qualitative characteristics of financial statements

A 5-year bond with a 10% coupon has a present yield to maturity of 8%. If interest rates remain constant one year from now, the price of the bond will be: A)the same. B)higher. C)lower.

C is correct A premium bond sells at more than face value, thus as time passes the bond value will converge upon the face value.

Ernesto Vivaldo is a CFA candidate. He is working in the branch office of an American-based investment company in Belgium. Vivaldo is a citizen of Venezuela. In his country, a portfolio manager is not required to disclose referral fees. Belgian law does not allow referral fees for portfolio managers. Vivaldo has been offered a deal that involves a referral fee. Vivaldo should follow the requirements of: A)CFA Institute. B)Venezuela. C)Belgium.

C is correct According to Standard I(A) Knowledge of the Law, CFA candidates and current CFA Institute members must follow whichever law is stricter. In this case, the strictest laws are those of Belgium.

Revenue = £800,000 Variable cost = $400,000 Fixed cost = $200,000 Operating income = $200,000 Interest = $60,000 Net income =$ 140,000 The firm's degree of total leverage (DTL) is closest to: A.) 1.43. B.) 2.00. C.) 2.86.

C is correct DTL = Revenue - Variable cost/Net income = £800,000 - £400,000/£140,000 = 2.86.

Paragon Company's operating profits are $100,000, interest expense is $25,000, and earnings before taxes are $75,000. What is Paragon's interest coverage ratio? A)1 time. B)3 times. C)4 times.

C is correct ICR = operating profit ÷ I = EBIT ÷ I = 100,000 ÷ 25000 = 4

LIFO ending inventory can be adjusted to a FIFO basis by: A)subtracting the change in the LIFO reserve. B)adding the change in the LIFO reserve. C)adding the LIFO reserve.

C is correct LIFO Inv + Life Reserve = FiFO inv Lifo COGS + Change in LIFO COGS = Fifo COGS

which of the following is a coincident indicator? A.) Prime rate B.) manufacturing hours worked C.) non-agricultural employees

C is correct Prime rate is a lagging indicator manufacturing hours worked is a leading indicator

Protocol, Inc.'s net income for 2005 was $4,800,000. Protocol had 800,000 shares of common stock outstanding for the entire year. The tax rate was 40 percent. The average share price in 2005 was $37.00. Protocol had 5,000 8 percent $1,000 par value convertible bonds that were issued in 2004. Each bond is convertible into 25 shares of common stock. Protocol, Inc.'s basic and diluted earnings per share for 2005 were closest to: Basic EPS -- Diluted EPS A)$6.00 ---- $4.92 B)$5.19 ---- $4.92 C)$6.00 ---- $5.45

C is correct Protocol's basic EPS (net income / weighted average common shares outstanding) was $4,800,000 / 800,000 = $6.00. Diluted EPS is calculated under the assumption that the convertible bonds were converted into common stock, and the bond interest net of tax was restored to net income. The common shares from the conversion of the bonds are added to the denominator of the equation. Protocol's Diluted EPS was [$4,800,000 + (5,000 × $1,000 × 0.08)(1 − 0.40)] / [800,000 + (5,000 × 25)] = $5.45

The Better Building Company has a contract to build a building for $100 million. The estimate of the cost of the project is $75 million. In the first year of the project, BB had costs of $30 million. The Better Building Company's reported profit for the first year of the contract, using the percentage-of-completion method, is: A)$20 million. B)$0. C)$10 million.

C is correct Reported profit (in millions) = ($30 / $75)($100 − 75) = $10.

A portfolio's excess return per unit of systematic risk is known as its: A)Jensen's alpha. B)Sharpe ratio. C)Treynor measure.

C is correct The Treynor measure is excess return relative to beta. The Sharpe ratio measures excess return relative to standard deviation. Jensen's alpha measures a portfolio's excess return relative to return of a portfolio on the SML that has the same beta.

A firm wants to select a team of five from a group of ten employees. How many ways can the firm compose the team of five? A)120. B)25. C)252.

C is correct This is a labeling problem where there are only two labels: chosen and not chosen. Thus, the combination formula applies: 10! / (5! × 5!) = 3,628,800 / (120 × 120) = 252.

if the tax payable is 15,000 and the deferred tax liability is 1400 in 2019 and 1650 in 2020 what is the income tax expense? A.) 16,500 B.) 14,750 C.) 15,250

C is correct income tax expense = tax payable + change in deferred tax (DFL-DFA)

Net Sales = $500 An increase in accounts receivable = 20 A decrease in accounts payable = 40 An increase in inventory = 30 Sale of common stock = 100 Repayment of debt = 10 Depreciation = 2 Net Income = 100 Interest expense on debt = 5 The company's cash flow from financing is: A)-$10. B)$100. C)$90.

C is correct sale of common stock 100 repayment of debt = (10) Financing CF's = 90

If a company chooses to write down inventory, which ratio is most likely to improve? A)Debt-to-equity ratio. B)Operating profit margin. C)Total asset turnover.

C is correct sales/ assets A and B both decrease

Given a large random sample, which of the following types of data are least appropriately analyzed with nonparametric tests? A.) Signed data (e.g., number of positives and negatives) B.) Ranked data (e.g., 1st, 3rd) C.) Numerical values (e.g., 28.43, 79.11)

C is correct C is correct. Nonparametric tests are primarily concerned with ranks, signs, or groups, and they are used when numerical parameters are not known or do not meet assumptions about distributions. Even if the underlying distribution is unknown, parametric tests can be used on numerical data if the sample is large.

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: A.) to accept the null hypothesis. B.) that the chosen significance level is too high. C.) to reject the null hypothesis.

C is correct. The p-value is the smallest level of significance at which the null hypothesis can be rejected.

A European foreign exchange dealer gives the following exchange rate information to a European client: USD/EUR spot rate = 1.1640; three-month forward points = 12.8. The best interpretation of the exchange rate information is that: A.) the US dollar is trading at a premium to its forward rate. B.) the three-month US real interest rate is expected to rise. C.) three-month eurozone interest rates are lower than those in the United States.

C is correct. A positive forward premium indicates that the interest rates in the base currency region (eurozone) are lower than the interest rates in the price currency region (United States).

Which of the following is the best example of conservative accounting? A.) Reducing the allowance for bad debt expense below the experienced loss rate. B.) Deferring R&D expenses to a subsequent year. C.) Choosing to depreciate new equipment over the shortest estimate of its useful life.

C is correct. Depreciating equipment over the shortest estimated period of its useful life is a conservative accounting choice that reduces earnings in the early years and increases them in the future, creating a positive trajectory.

An economist states that the probability of having the gross domestic product (GDP) of a country higher than 3% is 0.20. What are the odds against a GDP higher than 3%? A.) 5 to 1 B.) 6 to 1 C.) 4 to 1

C is correct. Given the probability of an event, P(E), the odds against that event are: [1 − P(E]/P(E). By using the input of the problem, Odds against E = (1 − 0.2)/0.2 = 4. This means that given the probability stated by the economist, the odds against a GDP above 3% are 4 to 1.

Account Name --------------------Amount ($ trillions) GDP ------------------------------------------18.0 Wages, salaries, and other labor income ----9.0 Taxes ------------------------------------------3.5 Capital consumption allowance --------------2.3 Undistributed corporate profits --------------1.0 Transfer payments -----------------------------1.9 Personal income (in $ trillions) for this country is closest to: A.) 10.9. B.) 15.4. C.) 17.7.

C is correct. Personal income = National income - Taxes - Undistributed corporate profits + Transfer payments, where National income = GDP + Capital consumption allowance = 18 + 2.3 = 20.3 Personal income = 20.3 - 3.5 - 1.0 + 1.9 = 17.7

Initial fund assets = $100 millionFund assets at the end of the period (before fees) = $110 millionManagement fee based on assets under management = 2% Incentive fee based on the return = 20% Soft hurdle rate = 8% 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: A.) 7.8%. B.) 7.4%. C.) 5.8%.

C is correct. The soft hurdle rate is surpassed because the return of the fund is 10%. For that reason, the full fee, based on the full performance, is due. Management fee: 2% of $110 million = $2.2 million Incentive fee: 20% of $10 million = $2 million Total fees: $4.2 million

Under US GAAP, for reporting periods after 15 December 2015, unusual or infrequent items are shown on the income statement separately: A.) below continuing operations. B.) below discontinued operations. C.) as part of continuing operations.

C is correct. Under US GAAP, material items that are unusual or infrequent and that are both as of reporting periods beginning after 15 December 2015 are shown as part of a company's continuing operations but are presented separately.

If trading partners are to benefit from allowing the free movement of factors of production among their members, the trading partners most likely need to form a: A.) customs union. B.) free trade area. C.) common market.

C is correct. A common market allows the free movement of all factors of production among its members. It is a higher level of economic integration than what is available from either a free trade area or a customs union. B is incorrect. A free trade area eliminates barriers against the flow of goods and services among its members, but each country has its own policies with respect to non-members. A free trade area does not allow the free movement of factors of production among its members.

Which of the following statements most accurately describes a valuation allowance for deferred taxes? A valuation allowance is required under: A.) both IFRS and US GAAP on deferred tax assets arising from the translation of foreign operations. B.) IFRS on revaluation of a deferred tax asset. C.) US GAAP if there is doubt about recovering a deferred tax asset.

C is correct. A valuation allowance is required under US GAAP if there is doubt about whether a deferred tax asset will be recovered. Under IFRS, the deferred tax asset is written down directly.

An investment policy statement's risk objective states that over a 12-month period, with a probability of 95%, the client's portfolio must not lose more than 5% of its value. This statement is most likely a(n): A.) total risk objective. B.) relative risk objective. C.) absolute risk objective.

C is correct. The statement is an absolute risk objective because it expresses a **maximum loss in value with an associated probability of loss**.

** know for the exam** A three-year investment requires an initial outlay of £1,000. It is expected to provide three year-end cash flows of £200 plus a net salvage value of £700 at the end of three years. Its internal rate of return (IRR) is closest to: A.) 10%. B.) 11%. C.) 20%.

CF 0 = -1000 CF 1 = 200 CF2 = 200 CF 3 = 200 + Salvage value = 900 Answer is B

choose 6 candy bars out of a bucket of 11 candy bars. what formula do you use? Combination or Permutation

Combination because order doesn't matter the formula is N!/ (N-R)! * R! the answer is 11!/(11!-6!) * 6! = 462

Choose 3 companies out of a pool of 7 companies to analyze what formula fo you use? Combination or Permutation

Combination because order doesn't matter in this example the formula is N!/ (N-R)! * R! the answer is 7!/(7!-3!)*3! = 35

the opinion that is issued when there is a lack of evidence to issue a opinion is. A.) Qualified opinion B.) Unqualified opinion C.) adverse opinion D.) Disclaimer of opinion

D is correct

A 30-day $10,000 US Treasury bill sells for $9,932.40. The Money market yield is closest to: A.) 8.11%. B.) 8.17%. C.) 8.28%.

FV-PV/PV * 360/30 B is correct

A 30-day $10,000 US Treasury bill sells for $9,932.40. The bond equivalent yield is closest to: A.) 8.11%. B.) 8.17%. C.) 8.28%.

FV-PV/PV * 365/30 C is correct

LIFO liquidation may result when: A)cost of goods sold is less than the available inventory. B)purchases are more than goods sold. C)purchases are less than goods sold.

For LIFO companies, when more goods are sold than are purchased during a period, the goods held in opening inventory are in included in COGS. This will result in LIFO liquidation.

Costs that are included in the balance sheet value of inventory most likely include: A)Selling costs. B)Administrative overhead. C)Manufacturing overhead.

Product costs that are capitalized to inventory include purchase cost, conversion or manufacturing costs (including labor and overhead), and other costs to bring inventory to its present state and location. Period costs recognized as expenses when incurred include abnormal waste, storage costs not required for production, selling costs, and administrative overhead.

Tax Rate = 40% Equity Multiplier = 2.7 Net Profit Margin = 4.6% Equity Turnover = 5.2 what is the ROE? A.) 13% B.) 17% C.) 24%

ROE = Equity turnover * Net profit margin 5.2 * .046 = ~24%

the stage that involves friends and families money to turn the idea into a plan is the __________ stage A.) seed stage. B.) mezzanine stage. C.) angel investing stage.

c

For financial assets classified as available for sale, how are unrealized gains and losses reflected in shareholders' equity? A.) they are not recognized B.) they flow through retained earnings C.) they are a component of accumulated other comprehensive income

available for sale assets are held on the BS at fair value and then gains/losses are recorded as other comprehensive income C is correct

Discrete uniform distribution refers to the distribution of _________ _____________ outcomes.

equally likely

The annual cost of trade credit assuming a 365-day year for terms 3/10 net 40 is closest to: A.) 43.3%. B.) 44.9%. C.) 32.0%.

（1-0.97)/0.97=0.030928 (1+0.030928)^365/30-1=0.448