Try 2_Kaplan_Test 1

B) Trademarks. Intangible assets that can be sold, such as trademarks, provide collateral of good quality. A credit analyst should view as low-quality collateral any assets that are likely to be written down in value if a firm encounters financial distress, such as goodwill and deferred tax assets.

Which of the following assets is most likely to represent high-quality collateral in credit analysis? A) Goodwill. B) Trademarks. C) Deferred tax assets.

B) approximately 7.5%. The change in price due to a change in yield is only approximate because the calculation of effective duration does not reflect all of the curvature of the price-yield curve (convexity). It is a linear approximation of a non-linear relation.

A bond has an effective duration of 7.5. If the bond yield changes by 100 basis points, the price of the bond will change by: A) exactly 0.75%. B) approximately 7.5%. C) approximately 0.75%.

A) accrued revenue. Accrued (unbilled) revenue is recorded at the end of an accounting period for revenue that the company has earned but has not yet recognized. Unearned revenue results from collecting cash in an earlier period than the goods or services will be delivered (which is when the revenue can be recognized). Unearned revenue is an accrued liability because the company owes goods or services to the buyers.

A company that receives a cash payment for a service it will provide in the next accounting period is least likely to recognize: A) accrued revenue. B) unearned revenue. C) an accrued liability.

B) $26,800. COGS FIFO = COGS LIFO - (ending LIFO reserve - beginning LIFO reserve) COGS FIFO = 27,000 - (1,400 - 1,200) = $26,800.

A company using LIFO reports the following: Cost of goods sold was $27,000. Beginning inventory was $6,500, and ending inventory was $6,200. The beginning LIFO reserve was $1,200. The ending LIFO reserve was $1,400. The best estimate of the company's cost of goods sold on a FIFO basis would be: A) $21,300. B) $26,800. C) $27,500.

A) $70. Sale of common stock 45 Issuance of bonds 25 Financing cash flows $70

A company's financial statement data for the most recent year include the following: • Net income $100 • Depreciation expense 25 • Purchase of machine 50 • Sale of company trucks 30 • Sale of common stock 45 • Decrease in accounts receivable 10 • Increase in inventory 20 • Issuance of bonds 25 • Increase in accounts payable 15 • Increase in wages payable 10 Based only on these items, cash flow from financing activities is closest to: A) $70. B) $85 C) $140.

B) minimum lease payments for each of the next five years and the sum of lease payments more than five years in the future. Whether a lease is an operating or a finance (capital) lease, both U.S. GAAP and IFRS require disclosure of the minimum lease payments for each of the next five years and the sum of minimum lease payments more than five years in the future.

A firm that reports its lease of a conveyer system as an operating lease must disclose: A) only the annual lease payment. B) minimum lease payments for each of the next five years and the sum of lease payments more than five years in the future. C) minimum lease payments for each of the next ten years and the sum of lease payments more than ten years in the future.

A) increase if the firm funds the repurchase with debt or uses excess cash to repurchase the shares. The earnings yield on the firm's shares is $2 / $25 = 8%. Because both the firm's after-tax yield on excess cash and its after-tax cost of borrowing are less than the earnings yield, financing a share repurchase either with excess cash or with debt will increase earnings per share.

A firm with earnings per share of $2 decides to repurchase a portion of its shares at their market price of $25. The firm's after-tax cost of debt is 6% and the firm earns a 2% after-tax yield on its excess cash. When the firm repurchases shares, its earnings per share will: A) increase if the firm funds the repurchase with debt or uses excess cash to repurchase the shares. B) decrease if the firm funds the repurchase with debt or uses excess cash to repurchase the shares. C) decrease if the firm funds the repurchase with debt, but increase if the firm uses excess cash to repurchase the shares.

A) next reset date is in three months. Floating-rate securities are subject to interest rate risk because their coupon rates are not reset continuously. The longer the time until the security's next reset date, the greater its potential price fluctuation away from par value (to a discount or premium). Other reasons that the price can differ from par include caps and floors on the floating rate, changes in the issuer's credit risk that are not reflected in the coupon's quoted margin over LIBOR, and changes in the market's required margin for the firm's level of credit risk. A decrease in the required margin would be likely to cause the security to trade at a premium rather than a discount. Liquidity risk is much less likely to change than default risk and market interest rates.

A floating-rate security is most likely to trade at a discount to its par value because the: A) next reset date is in three months. B) security's yield premium for credit risk decreases. C) floating rate includes a margin over LIBOR to compensate for the issue's liquidity risk.

B) hard hurdle rate. In a hedge fund's fee structure, a hard hurdle rate means that incentive fees are earned only on returns in excess of the benchmark return. A soft hurdle rate means that incentive fees are calculated on the entire return, but are only paid if the return exceeds the hurdle rate. A high water mark specifies that incentive fees are only paid on returns that increase an investor's account value above its highest previous value.

A hedge fund that requires incentive fees to be calculated only on the portion of returns above a benchmark return is said to have a: A) soft hurdle rate. B) hard hurdle rate. C) high water mark.

C) determine asset classes offering unique risk and return profiles with low correlations to one another. Asset classes add value to a portfolio when they have unique risk/return profiles, and they have relatively low or negative correlations to one another. One of the benefits of asset allocation and diversification is to minimize unsystematic risk. Rebalancing policies are often established in the IPS, but establishing the strategic asset allocation will not necessarily prevent overweighting or underweighting due to market changes or tactical asset allocations.

A primary reason for developing a strategic asset allocation is to: A) minimize a portfolio's exposure to systematic risk. B) prevent the overweighting of any single asset classes. C) determine asset classes offering unique risk and return profiles with low correlations to one another.

B) lognormal distribution. The lognormal distribution is most appropriate for modeling asset prices because the values cannot be less than zero and are not bounded on the upside. A binomial distribution allows only two possible outcomes over a period.

A researcher needs to choose a probability distribution for the price of an asset that is quite volatile in order to simulate returns outcomes. She has a program that will generate random variables from any of a variety of distributions. The most appropriate distribution for her to select to generate the asset price distribution is a: A) normal distribution. B) lognormal distribution. C) Student's t-distribution.

A) converging trendlines form a triangle pattern on a price chart. Triangles are thought to be continuation patterns, suggesting that the trend will continue in the same direction it was going when the triangle pattern formed. An RSI above 70 is thought to indicate an overbought condition, which can be a warning sign that the current uptrend is not sustainable. An uptrend line should act as a support level in an uptrend when the price approaches the trendline from above. If an uptrend line acts as a resistance level, the price must have broken down through the trendline, which is a sign that the uptrend may be ending.

A technical analyst is most likely to expect an uptrend in prices to continue if: A) converging trendlines form a triangle pattern on a price chart. B) the 14-day relative strength index increases from 70 to 80. C) the uptrend line acts as a resistance level when the price approaches it.

C) 89%. According to Chebyshev's inequality, the proportion of the observations within 3 standard deviations of the mean is at least 1 − (1 / 3^2) = 0.89 or 89%. This holds for any distribution, regardless of the shape.

According to Chebyshev's inequality, the minimum proportion of observations falling within three standard deviations of the mean for a negatively skewed distribution is closest to: A) 68%. B) 75%. C) 89%.

B) unbiased and consistent. An unbiased estimator has an expected value equal to the true value of the population parameter. A consistent estimator is more accurate the greater the sample size. An efficient estimator has the sampling distribution that is less than that of any other unbiased estimator.

Adam Farman has been asked to estimate the volatility of a technology stock index. He has identified a statistic which has an expected value equal to the population volatility and has determined that increasing his sample size will decrease the sampling error for this statistic. Based only on these properties, his statistic can best be described as: A) unbiased and efficient. B) unbiased and consistent. C) efficient and consistent.

A) is different from the statistic he is trying to estimate by the amount of the sampling error. The 20 quarters he has used are a sample of all the possible outcomes for the quarterly returns on the index. The difference between the true population parameter (mean index return) he is trying to estimate and the sample statistic he has calculated is called the sampling error. The arithmetic mean is the appropriate estimator of the next period's return.

Alan Barnes, CFA, is interested in the expected quarterly return on FTSE 100 stock index. He has data for the last five years and calculates the average return on the index over the last 20 quarters. This average return: A) is different from the statistic he is trying to estimate by the amount of the sampling error. B) overstates the return because he should divide by the square root of 20 when using a mean value. C) overstates the expected return because he should have used the geometric mean and not the simple average.

B) Inclusion of a call feature. Inclusion of a call feature will decrease the duration of a fixed income security. The other choices increase duration.

All else equal, which of the following is least likely to increase the interest rate risk of a bond? A) A longer maturity. B) Inclusion of a call feature. C) A decrease in the YTM.

C) Only one of these sources must be cited. Under Standard I(C) Misrepresentation, Winkler must identify Thompson as having developed the original model to avoid the prohibition against plagiarism. The only permitted exception is using factual information published by recognized financial and statistical reporting services such as S&P.

Allen Winkler, CFA, recently had lunch with Kim Thompson, a former professor of his, who told him of a new valuation model she had developed. Winkler recreated Thompson's model with some revisions and back-tested it using data provided by Standard & Poor's (S&P) with impressive results. Winkler's firm launches a mutual fund based on the revised model, and Winkler provides a discussion of the principles underlying the model and the test results. Is Winkler required to credit Thompson for having developed the model and S&P as the source of the data? A) Both of these sources must be cited. B) Neither of these sources must be cited. C) Only one of these sources must be cited.

A) $840. FCFF = Cash flow from operations + interest expense net of tax - net capital expenditures FCFF = $800 + 80(1 - 0.35) - 40 + 30 = $842 Depreciation and amortization do not have to be added when calculating FCFF from CFO. They are added when calculating FCFF from net income.

An analyst gathered the following information about a company: • Cash flow from operations $800 • Purchase of plant and equipment 40 • Sale of land 30 • Interest expense 80 • Depreciation and amortization 100 • The company has a tax rate of 35% and prepares its financial statements under U.S. GAAP. The company's free cash flow to the firm (FCFF) is closest to: A) $840. B) $870. C) $940.

A) 0.25. The correlation between the two stocks is: ρA,B = COVA,B / (σA × σB) = 0.001 / (0.05 × 0.08) = 0.001 / (0.004) = 0.25 Note that the formula uses the standard deviations, not the variances, of the returns on the two securities.

An analyst gathers the following data about the returns for two stocks. Stock A Stock B E(R) 0.04 0.09 σ2 0.0025 0.0064 CovA,B = 0.001 The correlation between the returns of Stock A and Stock B (ρA,B) is closest to: A) 0.25. B) 0.50. C) 0.63.

C) greater than the option's value today. The probability-weighted average calculated by the analyst is the option's value after one period. To estimate the option's value today, this result must be discounted by one period.

An analyst using a one-period binomial model calculates a probability-weighted average of an option's values following an up-move or a down-move. According to this model, this average is most likely: A) equal to the option's value today. B) less than the option's value today. C) greater than the option's value today.

C) in the maturity stage with high barriers to entry. The maturity phase of an industry life cycle is not typically characterized by excess capacity or price competition. The conditions described may be consistent with a concentrated industry (typically characterized by low levels of price competition, since firms in the industry seek to avoid it) that is moving into the decline phase of an industry life cycle (excess capacity leads to aggressive price cutting, especially when barriers to exit are high). These conditions could also be consistent with an industry that is moving into the shakeout phase (characterized by developing excess capacity and intense price competition) following the growth phase (during which price competition is low).

Archer Products is in an industry that has experienced low levels of price competition but recently excess capacity has led to aggressive price cutting. An analyst would be least likely to describe Archer's industry as: A) concentrated and with high barriers to exit. B) in the shakeout stage with low concentration. C) in the maturity stage with high barriers to entry.

A) the special purpose vehicle is a separate entity. The SPV in a securitization is a separate legal entity and thereby bankruptcy-remote from the seller, which means the seller's creditors do not have a claim against the pool of assets underlying an ABS. As a result, the ABS may have a higher credit rating than the seller's corporate bonds.

Asset-backed securities (ABS) may have a higher credit rating than the seller's corporate bonds because: A) the special purpose vehicle is a separate entity. B) the seller's ABS are senior to its corporate bonds. C) ABS are investment grade while corporate bonds may be speculative grade.

B) producer surplus by less than it reduces consumer surplus. Regardless of whether a tax is imposed on suppliers or consumers, the relative burden of the tax to each depends on the relative elasticities of supply and demand. Since demand is relatively less elastic than supply, the burden of the tax will be greater on consumers than on producers. These burdens are equivalent to decreases in producer and consumer surpluses. Total consumer and producer surpluses will be reduced by the amount of the resulting deadweight loss in addition to the total amount of tax collected.

Assume that the supply of ethanol is relatively more elastic than the demand for ethanol. Compared to an initial competitive equilibrium in the market for ethanol, the imposition of a per-gallon tax on producers of ethanol will most likely decrease: A) producer surplus by the total amount of tax collected. B) producer surplus by less than it reduces consumer surplus. C) the sum of consumer and producer surplus by the amount of tax collected.

A) 0.0227 PSG/TRT. The TRT/PSG cross rate is 5.5 × 8.0 = 44 TRT/PSG. Because the answer choices are quoted as PSG/TRT, we need to invert this result: 1 / 44 = 0.0227 PSG/TRT.

Assume the exchange rate between the Trotter (TRT) and the Roeckl (RKL) is 5.50 TRT/RKL and the exchange rate between the Roeckl and the Passage (PSG) is 8.00 RKL/PSG. The cross rate between the PSG and the TRT is closest to: A) 0.0227 PSG/TRT. B) 0.6875 PSG/TRT. C) 44.00 PSG/TRT.

C) short-term interest rates are negatively correlated with futures prices. Forward and futures prices may differ for otherwise identical contracts if interest rates are positively or negatively correlated with futures prices. The difference arises from the fact that futures are marked to market daily while forwards are not. A futures contract holder can earn interest on mark-to-market gains and faces an opportunity cost of interest of mark-to-market losses.

At initiation of a forward contract and a futures contract with identical terms, their prices are most likely to be different if: A) the spot price is highly volatile. B) the forward contract is marked to market daily. C) short-term interest rates are negatively correlated with futures prices.

C) get a credit rating on the bonds that will result in a lower cost of borrowing. Issuing securitized bonds from a special purpose entity allows a corporation to dedicate the assets' cash flows to specific debt issues. This enables the issue to receive a higher credit rating than that of the corporation.

Which of the following best describes the motivation for a corporation to issue securitized bonds? Securitization of specific assets by a corporation enables the corporation to: A) improve the recovery rate in the event of default. B) use the assets as collateral for additional borrowing. C) get a credit rating on the bonds that will result in a lower cost of borrowing.

A) Both ratios will decrease. As an example, start with CA = 2, CL = 1, and Inv = 1.2. We begin with a current ratio of 2 and a quick ratio of 0.8. If the firm increases short-term bank debt (a current liability) by 1 to buy inventory (a current asset) of 1, both the numerator and denominator increase by 1, resulting in 3/2 = 1.5 (new current ratio) and (3-2.2)/2 = .4 (new quick ratio).

Books Forever, Inc., uses short-term bank debt to buy inventory. Assuming an initial current ratio that is greater than 1, and an initial quick (or acid test) ratio that is less than 1, what is the effect of these transactions on the current ratio and the quick ratio? A) Both ratios will decrease. B) Neither ratio will decrease. C) Only one ratio will decrease.

A) dependent events. *possibly mutually exclusive Events J and K are dependent. By the multiplication rule, joint probability P(JK) = P(J|K) × P(K), or P(JK) = P(K|J) × P(J). Events are independent if P(J|K) = P(J) and P(K|J) = P(K). This implies that for independent events, P(JK) = P(J) × P(K). If this condition is not met, events J and K are dependent. If events J and K are mutually exclusive, their joint probability is zero. The information given is consistent with this but not sufficient to conclude that this is the case.

If the probability of event J multiplied by the probability of event K is not equal to the joint probability of events J and K, then events J and K are most likely: A) dependent events. B) independent events. C) mutually exclusive events.

A) equal to the market price of the bond. The value of a bond calculated using appropriate spot rates is its no-arbitrage value. If no arbitrage opportunities are present, this value is equal to the market price of a bond.

If the yield curve is downward-sloping, the no-arbitrage value of a bond calculated using spot rates will be: A) equal to the market price of the bond. B) less than the market price of the bond. C) greater than the market price of the bond.

C) longer time horizons and lower liquidity needs. Greenfield investments are infrastructure projects that have not yet been built. Compared to brownfield investments, which are infrastructure assets that already exist, greenfield investments are more appropriate for investors with longer time horizons. Greenfield investments have greater risk than brownfield investments. Direct investments in infrastructure of either type are illiquid.

Compared to brownfield infrastructure investments, greenfield infrastructure investments are more appropriate for investors with: A) lower liquidity needs and lower risk tolerance. B) higher risk tolerance and shorter time horizons. C) longer time horizons and lower liquidity needs.

A) effective duration. Effective duration and effective convexity capture the effects from changes in a bond's cash flows when the yield changes. For this reason, they are the appropriate measures of interest rate sensitivity for bonds with embedded options.

Changes in a fixed-coupon bond's cash flows associated with changes in yield would be reflected in the bond's: A) effective duration. B) modified duration. C) Macaulay duration.

A) include all fee-paying and non-fee-paying accounts in at least one composite. All fee-paying discretionary accounts must be included in composites, but including non-fee-paying accounts is not required. The other statements are requirements for compliance.

Compliance with the Global Investment Performance Standards least likely requires firms to: A) include all fee-paying and non-fee-paying accounts in at least one composite. B) document in writing the policies and procedures used to comply with GIPS. C) specifically define what constitutes the firm that is claiming compliance.

A) not be in violation of any Standards. According to Standard IV(A) Loyalty, the interests of a member or candidate's employer are secondary to protecting the interests of clients and the integrity of capital markets. In this circumstance, whistleblowing is justified. As long as his motivation is clearly not for personal gain, he may, according to the Standards, violate employer confidentiality in this case. While he is required to dissociate from the suspect activity by Standard I(A) Knowledge of the Law, he is not prohibited by the Standards from reporting it unless a stricter local law applies.

Craig Boone, CFA, a fixed-income trader, observes that one of the salesmen on the desk has been allocating his trades at the end of the day, giving better execution to large clients, a practice Boone suspects is illegal. The salesman tells Boone this is a common practice and that the firm's senior management is aware of it. If Boone makes a personal record of the activity, takes it home for his personal files, and subsequently reveals it to regulatory authorities, he would: A) not be in violation of any Standards. B) be in violation of the Standards for disclosing confidential information. C) be in violation of the Standards for breaching his duty of loyalty to his employer.

A) tax concerns. Of the five categories of investment constraints, the four matters listed are related to Pope's time horizon (years to retirement), liquidity needs (available cash), legal and regulatory factors (required copies of account statements to Pope's compliance officer), and unique needs and preferences (no investments in Lower Pannonia). None of these constraints address Pope's tax situation or the taxable status of the investment account.

Davis Samuel, CFA, is meeting with one of his portfolio management clients, Joseph Pope, to discuss Pope's investment constraints. Samuel has established that: Pope plans to retire from his job as a bond salesman in 17 years, after which this portfolio will be his primary source of income. Pope has sufficient cash available that he will not need this portfolio to generate cash outflows until he retires. Pope, as a registered securities representative, is required to have Samuel send a copy of his account statements to the compliance officer at Pope's employer. Pope opposes certain policies of the government of Lower Pannonia and does not wish to own any securities of companies that do business with its regime. To complete his assessment of Pope's investment constraints, Samuel still needs to inquire about Pope's: A) tax concerns. B) liquidity needs. C) unique needs and preferences.

A) both his ownership of Braden shares and his prospective consulting work. Both ownership of Braden stock and the possible consulting work present potential conflicts of interest for Smith and must be disclosed within the report to comply with Standard VI(A) Disclosure of Conflicts.

Donald Smith, CFA, has been assigned by his employer to write a report for clients on Braden Corporation. Smith has 1,000 shares of Braden that he bought three years ago and has been discussing a consulting contract with Braden to write guidelines for their investor relations department. If Smith writes the report on Braden Corporation, he must disclose within the report: A) both his ownership of Braden shares and his prospective consulting work. B) and to his employer his prospective consulting work but not his ownership of Braden shares. C) his ownership of Braden shares but need only disclose his prospective consulting work to his employer.

A) capitalize an expense. Management may attempt to increase reported earnings in the current period by capitalizing an expense. Capitalizing a lease would decrease earnings in the current period compared to recording an operating lease. Classifying a nonrecurring gain as recurring income would not increase net income because it already includes nonrecurring gains.

During a period when net income is unexpectedly weak, managers who attempt to smooth earnings are most likely to: A) capitalize an expense. B) capitalize a new lease. C) classify a nonrecurring gain as recurring income.

C) bond yield plus risk premium approach. Using the CAPM approach, the estimated cost of common equity = 3% + 0.89(12% - 3%) = 11%. Using the dividend discount model approach, the growth rate = (0.3)(0.2) = 6% and the estimated cost of common equity = $3 / $50 + 6% = 12%. To get a cost of common equity of 14%, Harlan most likely added a risk premium to Cyrene's bond yield.

Faye Harlan, CFA, is estimating the cost of common equity for Cyrene Corporation. She prepares the following data for Cyrene: Price per share = $50. Expected dividend per share = $3. Expected retention ratio = 30%. Expected return on equity = 20%. Beta = 0.89. Yield to maturity on outstanding debt = 10%. The expected market rate of return is 12% and the risk-free rate is 3%. Based on these data, Harlan determines that Cyrene's cost of common equity is 14%. Harlan most likely arrived at this estimate by using the: A) dividend discount model approach. B) capital asset pricing model approach. C) bond yield plus risk premium approach.

A) Current yield. Current yield = annual coupon / bond price. A pure discount bond is a zero-coupon bond, which has a current yield of zero.

For a five-year pure discount bond that is callable at par after two years, which of the following yield measures will be lowest? A) Current yield. B) Yield to first call. C) Yield to maturity.

(Expected Return - Needed Return) / SD Max is most desirable

Formula for Roy's Safety-First criterion

B) long call, short put, and long risk-free bond. An asset underlying put and call options can be replicated with a long European call option, a short European put option, and a long position in a risk-free bond that pays the exercise price on the expiration date.

Given the put-call parity relationship, a synthetic underlying asset can be created by forming a portfolio of a: A) long call, long put, and short risk-free bond. B) long call, short put, and long risk-free bond. C) short call, long put, and long risk-free bond.

B) Net income and equity are unaffected, but the change may be discussed in management's commentary. Material changes in the firm's cost of debt capital should be included in the Management Discussion and Analysis section of the financial statements. If the firm does not use fair value reporting of debt obligations, net income and shareholders' equity are not affected by changes in the market value of the firm's debt, and disclosing its gain or loss in market value is not required.

If market interest rates have changed materially since a firm issued a bond, and the firm uses the effective interest rate method, how is a change in the market value of the firm's debt most likely to be reported in the firm's financial statements? A) The gain or loss in market value must be calculated and disclosed in the footnotes to the financial statements. B) Net income and equity are unaffected, but the change may be discussed in management's commentary. C) Net income is unaffected, but the change in market value is recorded in other comprehensive income.

A) reported as an operating loss. Impairment writedowns are reported losses "above the line" and are included in income from continuing operations.

Harding Corp. has a permanently impaired asset. The difference between its carrying value and the present value of its expected cash flows should be written down immediately and: A) reported as an operating loss. B) charged directly against retained earnings. C) reported as a non-operating loss in other comprehensive income.

B) discontinued operations. IFRS and U.S. GAAP both require discontinued operations to be reported on the income statement separately from continuing operations and net of tax. U.S. GAAP permits unusual and infrequent items to be treated as extraordinary items, but IFRS does not permit extraordinary items. Fixed assets can be revalued upward under IFRS but not under U.S. GAAP.

IFRS and U.S. GAAP are most similar in their requirements for: A) extraordinary items. B) discontinued operations. C) valuation of fixed assets.

C) +0.0375%. Convexity adjustment to %ΔP = ½ convexity measure × (ΔYTM)2 × 100 = ½(120)(-0.0025)2(100) = 0.0375%.

If a bond has a convexity of 120 and a modified duration of 10, the convexity adjustment (to a duration-based approximation) associated with a 25 basis point interest rate decline is closest to: A) -2.875%. B) -2.125%. C) +0.0375%.

B) 0.024. From the fact that betai = Covi,mkt / Varmkt, we have Covi,mkt = betai × varmkt. Covi,mkt = 1.2 × 0.14^2 = 0.02352.

If a stock's beta is equal to 1.2, its standard deviation of returns is 28%, and the standard deviation of the returns on the market portfolio is 14%, the covariance of the stock's returns with the returns on the market portfolio is closest to: A) 0.168. B) 0.024. C) 0.600.

B) 3-year municipal bond rated BB. Investment grade bonds are BBB- and above. This bond is rated BB, which is below BBB-.

If an investor wants only investment grade bonds in her portfolio, she would be least likely to purchase a: A) 2-year municipal bond rated A-. B) 3-year municipal bond rated BB. C) 15-year, semiannual coupon corporate bond rated BBB.

A) the equilibrium interest rate will rise. Increases in expected future incomes will decrease savings, which will decrease the supply of financial capital and increase the equilibrium interest rate. If the demand for financial capital rises, interest rates also rise; so both changes tend to increase the equilibrium interest rate.

If investors' expected future incomes increase and the demand for financial capital increases, other things equal: A) the equilibrium interest rate will rise. B) the equilibrium interest rate will fall. C) these two factors will have opposing effects on the equilibrium interest rate.

C) expenses incurred to generate revenue are recognized in the same time period as the revenue. The matching principle holds that expenses should be accounted for in the same performance measurement period as the revenue they generate.

In accrual accounting, the matching principle states that: A) an entity should recognize revenues only when received and expenses only when they are paid. B) transactions and events producing cash flows are allocated only to time periods in which the cash flows occur. C) expenses incurred to generate revenue are recognized in the same time period as the revenue.

B) Feedback step. The three major steps in the portfolio management process are planning, execution, and feedback. Rebalancing the portfolio to its desired asset allocation is part of the feedback step.

In which step of the portfolio management process does an investment manager rebalance the portfolio to its target asset allocation percentages? A) Analysis step. B) Feedback step. C) Execution step.

A) the Standard on misrepresentation. Government bonds are default risk free but are subject to price risk. Thus, Blush misrepresented the expected performance of the fund and therefore violated Standard I(C) Misrepresentation.

Judy Blush is a CFA candidate and is recommending the purchase of a mutual fund that invests solely in long-term U.S. Treasury bonds (T-bonds) to one of her clients. She states that, "Since the U.S. government guarantees payment of both the bond's principal and interest, risk of loss with this investment is virtually zero." Blush's actions violated: A) the Standard on misrepresentation. B) the Standard on communication with clients and prospective clients. C) none of the CFA Institute Standards of Professional Conduct.

B) misrepresentation. Woods has misrepresented Lam's experience. They don't really have an "experienced international team." That would include analysts, researchers, back office capabilities and experience, and the firm's investment committee as well. It is not a violation of the Standard on performance presentation to include the results of the newly hired managers as long as it is clear they achieved their performance at their previous firm. Fair dealing has not been violated because no clients were disadvantaged in favor of others.

Lam Securities has managed domestic fixed income and equity accounts for many years. Recently they hired two experienced international equity portfolio managers from a firm with a great record of investment success. Mary Woods, CFA, prepares a new marketing piece for Lam, adding information about their international equities capabilities. She states that Lam has expertise in managing international equities and cites the top quartile performance of the new managers at their previous firm. It is most likely that Woods has violated the Standard regarding: A) fair dealing. B) misrepresentation. C) performance presentation

C) the fact that she is compensated for the referrals and the nature of the compensation she is to receive, to her employer and any clients or prospects she refers to Sear. Standard VI(C) Referral Fees requires members and candidates to disclose any compensation received for referrals and the nature of the compensation, to their employers and to any clients or prospects they refer to others with the expectation of compensation in any form.

Mary Walters, CFA, is a bank trust officer who has entered into a referral agreement with Bob Sear, a tax attorney. Sear has told Walters that he will do her tax work in return for referrals. According to the CFA Institute Code and Standards, Walters must disclose: A) only the fact that she compensated for referrals, to any clients or prospects she refers to Sear. B) only the fact that she is compensated for referrals, to her employer and any clients or prospects she refers to Sear. C) the fact that she is compensated for the referrals and the nature of the compensation she is to receive, to her employer and any clients or prospects she refers to Sear.

A) IFRS only. Under IFRS, past service costs (changes in defined benefit plan obligations that result from a change in the plan's terms) are reported as part of service costs, a component of net income. Under U.S. GAAP, past service costs are recognized in other comprehensive income and amortized over time to the income statement.

Meyer Company increases the promised payments for all employees in its defined benefit pension plan. Under which financial reporting standards would Meyer recognize past service costs in its income statement for the period? A) IFRS only. B) U.S. GAAP only. C) Both IFRS and U.S. GAAP.

A) stop buy order at $44. The investor is short the stock and will experience losses if the stock price increases. A stop buy order at $44 will execute if the stock price rises to $44 or higher. A limit buy order at $44 would execute immediately because the stock price is less than $44.

Moore Company stock is currently trading at $40 per share. An investor attempting to protect against losses of more than 10% on a short position in Moore should place a: A) stop buy order at $44. B) stop sell order at $36. C) limit buy order at $44.

C) solvency risk. Non-financial risks are those that arise from an organization's operations and from outside sources other than financial markets. Solvency risk is classified as a non-financial risk.

Non-financial sources of risk for an organization most likely include: A) credit risk. B) liquidity risk. C) solvency risk.

A) Sensitivity analysis Simulation Sensitivity analysis is based on hypothetical ("what if ") questions about a single variable, such as "what if sales decline by 10%?" Simulation is a technique in which probability distributions for key variables are assumed and a computer is used to generate a distribution of outcomes based on repeated random selection of values for the key variables. Scenario analysis is based on one or more specific scenarios (a specific set of outcomes for key variables), which include changes in multiple variables.

Of the following methods of examining the uncertainty of financial outcomes around point estimates, which answers hypothetical questions about the effect of changes in a single variable and which uses assumed probability distributions for key variables? Hypothetical questions Probability distributions A) Sensitivity analysis Simulation B) Scenario analysis Simulation C) Scenario analysis Sensitivity analysis

B) 5.09%. (1 + HPR)1/n − 1 = (1 + 1.70)1/20 − 1 = 0.050916

Using historical index returns for an equities market over a 20-year period, an analyst has calculated the average annual return as 5.60% and the holding period return as 170%. The compound annual index return over the period is closest to: A) 2.69%. B) 5.09%. C) 5.24%.

B) decrease its interest rate risk. Because the price-yield relationship for an option-free bond is convex, interest rate risk as measured by duration changes when a bond's YTM changes. An increase in YTM reaches a flatter part of the price-yield curve, from which changes in yield will have relatively smaller effects on the bond's value.

Other things equal, an increase in an option-free bond's yield to maturity will: A) increase its interest rate risk. B) decrease its interest rate risk. C) not change its interest rate risk.

A) Both will increase. During economic contractions, the probability of default increases for lower-quality issues and their yields increase. When investors anticipate an economic downturn, they tend to sell low-quality issues and buy high-quality issues, causing credit spreads to widen.

Recent economic data suggest an increasing likelihood that the economy will soon enter a recessionary phase. What is the most likely effect on the yields of lower-quality corporate bonds and on credit spreads of lower-quality versus higher-quality corporate bonds? A) Both will increase. B) Both will decrease. C) One will increase and one will decrease.

A) Private equity funds. Investors require a liquidity premium for investments that are illiquid. Private equity funds are typically illiquid and may require lockup periods. Real estate investment trusts and exchange-traded funds are publicly traded and usually highly liquid.

Returns on which of the following alternative investments are most likely to include a liquidity premium? A) Private equity funds. B) Commodity-linked ETFs. C) Real estate investment trusts.

A) may accept the arrangements as they are. Because the itinerary required charter flights due to a lack of commercial transportation, River Casino can appropriately provide them. While Standard I(B) Independence and Objectivity recommends that members pay their own room costs, it is not required and it is not unusual for members to accept accommodations.

Roger Smith, CFA, has been invited to join a group of analysts in touring the riverboats of River Casino Corp. For the tour, River Casino has arranged chartered flights from casino to casino since commercial flight schedules are not practical for the group's time schedule. River Casino has also arranged to pay for the analysts' lodging for the three nights of the tour. According to CFA Institute Standards of Professional Conduct, Smith: A) may accept the arrangements as they are. B) may accept the flight but is required to pay for his lodging. C) is required to pay for his flight and lodging.

A) 28,000 and report a gain of 3,000 on the income statement. Under IFRS, inventory values are revalued upward only to the extent they were previously written down. In this case, that is from €25,000 back up to the original value of €28,000. The increase is reported as gain for the period.

Rowlin Corporation, which reports under IFRS, wrote down its inventory of electronic parts last period from its original cost of 28,000 to net realizable value of 25,000. This period, inventory at net realizable value has increased to 30,000. Rowlin should revalue this inventory to: A) 28,000 and report a gain of 3,000 on the income statement. B) 30,000 and report a gain of 3,000 on the income statement. C) 30,000 and report a gain of 5,000 on the income statement.

A) Early stage. The description relates best to the early stage wherein the capital that is supplied helps speed up product development and also helps pay for the beginning of a marketing campaign.

Supplying capital to companies that are just moving into operation, but do not as yet have a product or service available to sell, is a description that best relates to which of the following stages of venture capital investing? A) Early stage. B) Mezzanine stage. C) Angel investing stage.

A) both of these Standards. Smart violated both Standards. Smart violated Standard III(B) Fair Dealing because she not deal fairly and objectively with all clients and prospects when disseminating investment recommendations, giving priority to some of the firm's clients by trading for her clients first before issuing the report. She also sold her own shares before issuing the report, which violated Standard VI(B) Priority of Transactions. Smart did not give clients an opportunity to react to and benefit from her recommendation before she personally benefited from her research.

Susan Smart, CFA, is about to change her "buy" recommendation on RollinsCo to "sell." RollinsCo had been growing rapidly over the past year, but Smart believes the growth potential is now gone. Smart sells the shares held in her discretionary client accounts and in her own personal account before issuing her report. According to the Standards that concern fair dealing and priority of transactions, Smart violated: A) both of these Standards. B) neither of these Standards. C) only one of these Standards.

C) appreciation of the foreign currency will initially increase the trade deficit but will decrease the trade deficit in the long term. The J-curve effect refers to a plot of the trade deficit over time when the domestic currency depreciates (the foreign currency appreciates). The trade deficit gets worse initially but then improves over time, either because export and import demand are more elastic in the long run or because existing contracts for future delivery are fixed in foreign currency terms in the short run.

The J-curve, in the context of trade between two countries, refers to the fact that when the domestic country has a trade deficit: A) appreciation of the domestic currency initially leads to a decrease in the trade deficit but will increase the trade deficit in the long term. B) an increase in domestic inflation will initially increase the trade deficit but will decrease the trade deficit in the long term. C) appreciation of the foreign currency will initially increase the trade deficit but will decrease the trade deficit in the long term.

C) greater than the sum of its undiscounted expected cash flows. Under U.S. GAAP, an asset is considered impaired when its book value is greater than the sum of the estimated undiscounted future cash flows from its use and disposal.

Under U.S. GAAP, an asset is considered impaired if its book value is: A) less than its market value. B) greater than the present value of its expected future cash flows. C) greater than the sum of its undiscounted expected cash flows.

A) no voting rights. The security being described here is preferred stock (preference shares). In the event of liquidation of a firm, the claims of preferred equity shareholders are senior to the claims of common stockholders but subordinated to the claims of debt holders. Preferred shares typically have no voting rights.

The holder of the type of security that has a priority in liquidation less than that of bonds or promissory notes issued by the company but ahead of that of common stock is most likely to have: A) no voting rights. B) statutory voting rights. C) cumulative voting rights.

B) marginal cost curve above average variable cost. The supply curve for a firm under perfect competition is its marginal cost curve above average variable cost. As long as price exceeds AVC, the firm will produce up to the quantity where MC = Price, which is also MR in this case.

The short-run supply curve for a firm under perfect competition is the firm's: A) marginal cost curve above average total cost. B) marginal cost curve above average variable cost. C) average variable cost curve above marginal revenue.

A) no adjustment is necessary. Value-weighted indexes do not need to be adjusted for stock splits because the market capitalization of the company remains the same.

To ensure the continuity of a value-weighted index when one of the stocks in the index is split: A) no adjustment is necessary. B) only the denominator must be adjusted for the split. C) both the numerator and the denominator must be adjusted for the split.

C) equal-weighted indexes. Equal-weighted index portfolios require rebalancing after each return period because differences in returns among securities will drive the security weightings away from equal weighting. Changes in the security prices automatically adjust the weights in price- and value-weighted index portfolios to their correct values, so funds that track price- and value-weighted indexes do not require frequent rebalancing.

Transactions costs incurred from portfolio rebalancing are most likely to be highest for funds that track: A) price-weighted indexes. B) value-weighted indexes. C) equal-weighted indexes.

C) Only one of the statements is correct. Candidate 1 is incorrect. In the futures markets, margin is a performance guarantee. It is money deposited by both the long and the short. There is no loan involved (as opposed to in the equity markets) and thus no interest charges. Candidate 2 is correct.

Two Level I CFA candidates are discussing futures and make the following statements: Candidate 1: Futures are traded using standardized contracts. They require margin and incur interest charges on the margin loan. Candidate 2: If the margin balance falls below the maintenance margin amount due to a change in the contract price for the underlying assets, the investor must add funds to bring the margin back up to the initial margin requirement. Are the candidates' statements correct or incorrect? A) Both statements are correct. B) Neither statement is correct. C) Only one of the statements is correct.

B) other comprehensive income and are not amortized to income. Remeasurements (actuarial gains and losses, difference between actual return and expected return on plan assets) are recognized as other comprehensive income under IFRS and are not amortized.

Under IFRS, remeasurements related to defined benefit pension plans are initially recognized in: A) net income in the current period. B) other comprehensive income and are not amortized to income. C) other comprehensive income and amortized over time to income.

The four general categories are: (1) scale and diversification, (2) operational efficiency, (3) margin stability, and (4) leverage.

What are the four general categories considered in the formulas used by credit rating agencies to determine the capacity of a borrower to repay a debt?

C) One will increase and one will decrease. Prepayment rates will most likely increase if mortgage rates decrease. Increasing prepayments will decrease the weighted average life of the pass-through security.

What is most likely to happen to the prepayment rate and the weighted average life of a typical pass-through security if mortgage rates decrease? A) Both will increase. B) Both will decrease. C) One will increase and one will decrease.

C) The variance of the resulting portfolio is a weighted average of the returns variances of the risk-free asset and of the portfolio of risky assets. This statement is not correct; the standard deviation of returns for the resulting portfolio is a weighted average of the returns standard deviation of the risk-free asset (zero) and the returns standard deviation of the risky-asset portfolio.

When a risk-free asset is combined with a portfolio of risky assets, which of the following is least accurate? A) The standard deviation of the return for the newly created portfolio is the standard deviation of the returns of the risky asset portfolio multiplied by its portfolio weight. B) The expected return for the newly created portfolio is the weighted average of the return on the risk-free asset and the expected return on the risky asset portfolio. C) The variance of the resulting portfolio is a weighted average of the returns variances of the risk-free asset and of the portfolio of risky assets.

A) assets and liabilities both increase in value. The liability method (SFAS 109 of U.S. GAAP) takes a balance sheet approach and adjusts deferred tax assets and liabilities to future tax rates. An increase in the tax rate increases the value of both deferred tax assets and deferred tax liabilities.

When an increase in the tax rate is enacted, deferred tax: A) assets and liabilities both increase in value. B) assets decrease in value and deferred tax liabilities increase in value. C) liability and asset accounts are maintained at historical tax rates until they reverse.

B) Responsibilities of Supervisors by failing to implement reasonable procedures to detect violations. Michaels has violated Standard IV(C) Responsibilities of Supervisors, which requires him to make reasonable efforts to detect and prevent violations of compliance procedures. Simply making employees aware of the rules is not enough. Monitoring of employee trades, duplicate confirms, establishing blackout periods, or preclearance of employee trades are all methods that would have revealed the problem prior to the external audit. Michaels has not violated Standard I(D) Misconduct because his actions did not exhibit dishonesty or lack of integrity.

When he assumed the job of compliance officer two years ago, Ed Michaels, CFA, issued written compliance procedures and made all covered employees aware of the procedures. A report by an external auditor found that on several occasions over the past two years, two different employees traded in recommended securities ahead of trades made in managed client accounts. Michaels fires both employees and recirculates the written compliance procedures that explain clearly which activities are prohibited. Michaels has violated the Standard concerning: A) Responsibilities of Supervisors by firing the employees instead of restricting their activities. B) Responsibilities of Supervisors by failing to implement reasonable procedures to detect violations. C) Misconduct because, as the compliance officer, he is associated with, and ultimately responsible for, the unethical activity.

C) A deferred tax liability is created when tax expense is less than taxes payable and the difference is expected to reverse in future years. Deferred tax liability refers to balance sheet amounts that are created when tax expense is greater than taxes payable.

Which of the following definitions used in accounting for income taxes is least accurate? A) Income tax expense is current period taxes payable adjusted for any changes in deferred tax assets and liabilities. B) A valuation allowance is a reserve against deferred tax assets based on the likelihood that those assets will not be realized. C) A deferred tax liability is created when tax expense is less than taxes payable and the difference is expected to reverse in future years.

B) Rollover risk. Rollover risk is the risk that an issuer who relies on the commercial paper market as a funding source may not be able to issue new commercial paper when an outstanding issue matures. Default risk and reinvestment risk are faced by bondholders.

Which of the following is a risk faced by issuers of commercial paper? A) Default risk. B) Rollover risk. C) Reinvestment risk.

C) Foreign currency translation gains and losses. Foreign currency translation gains and losses are not reported on the income statement as a component of net income, but affect owners' equity because they are included as other comprehensive income. The other items are included on the income statement so they affect both net income and owners' equity.

Which of the following items affects owners' equity but is not included as a component of net income? A) Depreciation. B) Dividends received on shares of another company classified as available for sale. C) Foreign currency translation gains and losses.

C) General journal. The listing of all the journal entries in order of their dates is called the general journal. The general ledger sorts the entries in the general journal by account. "Trial ledger" is not part of an accounting system.

Which of the following items is best described as a listing of all the journal entries in order of their dates? A) Trial ledger. B) General ledger. C) General journal.

C) Nominal. From least to most information, the ordering of measurements scales is nominal, ordinal, interval, and ratio.

Which of the following measurement scales provides the least information? A) Ratio. B) Ordinal. C) Nominal.

A) World Bank. Promoting economic growth and reducing world poverty are among the primary goals of the World Bank. The IMF primarily promotes the growth of international trade, supports exchange rate stability, and provides a forum for cooperation on monetary problems internationally. The WTO has a primary focus on reaching trade agreements and settling trade disputes.

Which of the following organizations is the most focused on promoting economic growth and reducing poverty by offering both monetary and technical assistance? A) World Bank. B) World Trade Organization. C) International Monetary Fund.

A) Asset turnover. The three-part DuPont approach is as follows: net profit margin × asset turnover × leverage ratio, where the leverage ratio is assets-to-equity.

Which of the following ratios is a component of the original (three-part) DuPont equation? A) Asset turnover. B) Gross profit margin. C) Debt-to-equity ratio.

C) Earl Baker, an investor, earns consistently superior risk-adjusted returns by buying stocks when most investment advisors are pessimistic and selling stocks when most investment advisors are optimistic. If markets are efficient, investors should not earn consistently superior returns from technical trading rules such as a contrary opinion strategy. A stock price will decrease on a report of an increase in earnings if that increase is less than investors expected based on all the information previously available. An analyst's recommendations could be for stocks with more than market risk, or the analyst's industry may outperform for some period of time. Both could account for outperformance even though markets are efficient.

Which of the following scenarios is inconsistent with efficient financial markets? A) An analyst's buy recommendations have returned 2% more than the broad market index, on average. B) Johnson, Inc. reports an increase of 8% in its earnings from a year earlier, and its stock price declines 5% on the news. C) Earl Baker, an investor, earns consistently superior risk-adjusted returns by buying stocks when most investment advisors are pessimistic and selling stocks when most investment advisors are optimistic.

B) Real Estate Investment Trust indexes track the prices of shares of publicly traded companies that invest in mortgages or real property. REIT indexes represent a convenient way to invest in real estate. Commodity indexes are based on futures prices of commodities, and are not replicated by investing in the commodities themselves. Hedge fund indexes are biased upward because hedge funds are not required to disclose their performance to index providers and poorly performing funds are less likely to do so (self-selection bias).

Which of the following statements about alternative investment indexes is most accurate? A) An investor can replicate a commodity index by making direct investments in the underlying physical commodities. B) Real Estate Investment Trust indexes track the prices of shares of publicly traded companies that invest in mortgages or real property. C) Hedge fund indexes accurately represent the investment performance of the hedge fund industry.

C) investing includes interest income from investment in debt securities. Interest income is considered an operating cash flow under U.S. GAAP.

Which of the following statements about cash flow is least accurate? Under U.S. GAAP, cash flow from: A) operations includes cash operating expenses and changes in working capital accounts. B) financing includes the proceeds of debt issued and from the sale of the company's common stock. C) investing includes interest income from investment in debt securities.

B) The cost of preferred stock is the preferred dividend divided by the preferred's par value. The cost of preferred stock is calculated as the preferred dividend divided by the market price, not the par value.

Which of the following statements about the component costs of capital is least accurate? A) The cost of common equity is the required rate of return on common stock. B) The cost of preferred stock is the preferred dividend divided by the preferred's par value. C) The after-tax cost of debt is based on the expected yield to maturity on newly issued debt.

C) Both a put writer and a call writer have an obligation to exchange the underlying asset. Both put and call writers (sellers) have an obligation to honor the terms of the option if it is exercised. Option holders (buyers) have the right, not the obligation, to exercise under the terms of the agreement. The holder pays a premium for this right, while the writer receives a premium for this obligation. A forward contract imposes an obligation on both the buyer and seller to exchange the underlying asset.

Which of the following statements most accurately represents the positions of the parties to a derivatives contract? A) A call option imposes an obligation to buy the underlying security. B) A forward contract imposes an obligation on the seller but not the buyer. C) Both a put writer and a call writer have an obligation to exchange the underlying asset.

C) Deferred tax assets and liabilities are not adjusted for changes in tax rates. Deferred tax assets and liabilities are adjusted for changes in expected tax rates under the liability method.

Which of the following statements regarding deferred taxes is least accurate? A) A permanent difference is a difference between taxable income and pretax income that will not reverse. B) A deferred tax asset is created when a temporary difference results in taxable income that exceeds pretax income. C) Deferred tax assets and liabilities are not adjusted for changes in tax rates.

A) Given a significance level of 5%, a test will reject a true null hypothesis 5% of the time. The significance level of a test is the probability that a true null hypothesis will be rejected by chance because the test statistic is from a sample and may take on a value that is outside the range of critical values because of sampling error. Choice B is incorrect because the probability of making a correct decision also must account for the probability of failing to reject a false null hypothesis.

Which of the following statements regarding the significance level of a hypothesis test is most accurate? A) Given a significance level of 5%, a test will reject a true null hypothesis 5% of the time. B) If the significance level of a test is 5%, it will yield the correct decision about the null hypothesis 95% of the time. C) If the significance level of a test is 95%, it will yield the correct decision about the null hypothesis 95% of the time.

B) GIPS represent standards to which members of CFA Institute and CFA candidates must adhere. Global Investment Performance Standards represent ethical reporting standards, but compliance with GIPS is not a requirement of CFA Institute membership or to sit for the CFA examination.

Which of the following statements relating to the Global Investment Performance Standards (GIPS®) is least accurate? A) Only investment management firms may claim compliance with GIPS. B) GIPS represent standards to which members of CFA Institute and CFA candidates must adhere. C) To claim GIPS compliance, a firm must present at least five years (or since its inception if less than five years) of annual investment performance that complies with GIPS.

A) Whether a sample is random or not. Nonparametric tests can be used in a variety of instances where the assumptions required for parametric tests cannot be sustained. A runs test can be used to test for the randomness of a sample. Both of the other tests are parametric because they test the value of a parameter of the underlying distribution.

Which of the following tests would generally be considered a nonparametric test? A) Whether a sample is random or not. B) Large sample test of the value of a population mean. C) Value of the variance of a normal population.

B) Declaring a stock dividend. Declaring a stock dividend decreases retained earnings and increases contributed capital by the same amount, leaving total shareholders' equity unchanged. Issuing preferred stock increases both contributed capital and shareholders' equity. Increasing authorized shares does not increase contributed capital and shareholders' equity until the additional shares are issued.

Which of the following transactions increases contributed capital on the balance sheet but does not increase shareholders' equity? A) Issuing preferred stock. B) Declaring a stock dividend. C) Increasing authorized shares.

B) An increase in days of receivables outstanding. An increase in days of receivables outstanding, other things equal, will lengthen both the operating and cash conversion cycles, indicating poorer working capital management. An increase in days of payables outstanding, other things equal, would decrease the cash conversion cycle. A decrease in cash and marketable securities could simply indicate better management of cash (e.g., buying back its common stock or investing excess cash in profitable business opportunities or securities).

Which of the following would most likely indicate deterioration of a firm's working capital management? A) An increase in days of payables outstanding. B) An increase in days of receivables outstanding. C) A decreased amount of cash and cash equivalents.

B) violated the Standard concerning referrals. Standard VI(C) Referral Fees requires members and candidates to disclose any referral fees they will earn from successful referrals as well as the nature of the compensation. Here Rogers must disclose that he will receive a percentage of management fees on an ongoing basis.

William Rogers, CFA, is a commercial insurance broker who sometimes recommends money managers to his high net worth clients. For those clients who hire the managers, the managers pay Rogers a percentage of the management fees on the account. Rogers tells prospects, "I receive referral fees from the money managers if you employ them." Rogers has: A) not violated the Standards. B) violated the Standard concerning referrals. C) violated the Standard on communications with clients and prospects.

A) positively related to real income, holding the real money supply constant. The LM curve illustrates a positive relationship between real income and the real interest rate, holding the real money supply constant. The IS curve illustrates a negative relationship between real income and the real interest rate, holding the marginal propensity to save constant.

With respect to the IS-LM model, in an LM curve the real interest rate is: A) positively related to real income, holding the real money supply constant. B) held constant, resulting in excess savings being positively related to real income. C) negatively related to real income, holding the marginal propensity to save constant.