QB non-numerical part-1

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Of the following statements regarding the Producer Price Index (PPI), which is the least likely? The PPI: A- can influence the future CPI. B- category weights can vary more widely than analogous CPI terms. C- is used more frequently than CPI as a benchmark for adjusting labor contract payments.

One month after inception, the price return version and total return version of a single index (consisting of identical securities and weights) will be equal if: A- market prices have not changed. B- capital gains are offset by capital losses. C- the securities do not pay dividends or interest.

Proceeds for repaying securitized bonds most likely come from the: A- claims-paying ability of the operating entity. B- cash flows of the project the bond is financing. C- cash flows of the underlying financial assets.

Projecting profit margins into the future on the basis of past results would be most reliable when the company: A- is in the commodities business. B- operates in a single business segment. C- is a large, diversified company operating in mature industries.

Purchases of securities in the open market by the monetary authorities are least likely to increase: A- excess reserves. B- cash in investor accounts. C- the interbank lending rate.

Ratios are an input into which step in the financial statement analysis framework? A- Process data. B- Collect input data. C- Analyze/interpret the processed data.

Reconstitution of a security market index reduces: A- portfolio turnover. B- the need for rebalancing. C- the likelihood that the index includes securities that are not representative of the target market.

Regarding a company's debt obligations, which of the following is most likely presented on the balance sheet? A- Effective interest rate B- Maturity dates for debt obligations C- The portion of long-term debt due in the next 12 months

Relative to portfolios on the CML, any portfolio that plots above the CML is considered: A- inferior. B- inefficient. C- unachievable.

Returns on asset classes are best described as being a function of: A- the failure of arbitrage. B- exposure to the idiosyncratic risks of those asset classes. C- exposure to sets of systematic factors relevant to those asset classes.

Shares that have been repurchased and not cancelled by the company that issued them are referred to as: A- preferred shares. B- contributed capital. C- treasury stock.

Smith Bank lends Johnson Bank excess reserves on deposit with the central bank for a period of three months. Is this transaction said to occur in the interbank market? A- Yes. B- No, because the interbank market refers to loans for more than one year. C- No, because the interbank market does not include reserves at the central bank.

The holding period for a bond at which the coupon reinvestment risk offsets the market price risk is best approximated by: A- duration gap. B- modified duration. C- Macaulay duration.

The risk that the price at which investors can actually transact differs from the quoted price in the market is called: A- spread risk. B- credit migration risk. C- market liquidity risk.

Under International Financial Reporting Standards (IFRS), reported operating cash flows are most likely to be increased by the classification choice made for: A- impairment losses on fixed assets. B- dividends paid. C- interest expense.

Which of the following items is most likely to be classified as a non-current asset? A- Inventories B- Prepaid insurance C- Machinery acquired within the past year

Bond dealers most often quote the: A- flat price. B- full price. C- full price plus accrued interest.

Equity equals: A- Assets - Liabilities. B- Liabilities - Assets. C- Assets + Liabilities.

In theory, setting the policy rate equal to the neutral interest rate should promote: A- stable inflation. B- balanced budgets. C- greater employment.

New issues of securities are transactions in: A- the primary market. B- the secondary market. C- the seasoned market.

A "junk" bond is most likely a: A- supranational bond. B- high-yield bond. C- bond with credit rating above BBB-.

A characteristic of Big Data is that: A- one of its traditional sources is business processes. B- it involves formats with diverse types of structures. C- real-time communication of it is uncommon due to vast content.

A company's cost of equity is often used as a proxy for investors': A- average required rate of return. B- minimum required rate of return. C- maximum required rate of return.

A company's profitability for a period would best be evaluated using the: A- balance sheet. B- income statement. C- statement of cash flows.

A key criticism of robo-advisory services is that: A- they are costly for investors to use. B- the reasoning behind their recommendations can be unclear. C- they tend to produce overly aggressive investment recommendations.

A parametric test is most likely preferred to a non-parametric test when: A- the data are given in ratio or ordinal scale. B- defined sets of assumptions are given. C- the population is heavily skewed.

A price range in which selling is sufficient to stop the rise in price is best described as: A- change in polarity. B- resistance. C- support.

A private equity fund desiring to realize an immediate and complete cash exit from a portfolio company is most likely to pursue a(n): A- IPO. B- trade sale. C- recapitalization.

Absolute priority of claims in a bankruptcy might be violated because: A- of the pari passu principle. B- creditors negotiate a different outcome. C- available funds must be distributed equally among creditors.

An affirmative ( positive ) covenant is most likely to stipulate: A- limits on the issuer's leverage ratio. B- how the proceeds of the bond issue will be used. C- the maximum percentage of the issuer's gross assets that can be sold.

An increase in sample size is most likely to result in a: A- wider confidence interval. B- decrease in the standard error of the sample mean. C- lower likelihood of sampling from more than one population.

At the initiation of a forward contract on an asset that neither receives benefits nor incurs carrying costs during the term of the contract, the forward price is equal to the: A- spot price. B- future value of the spot price. C- present value of the spot price.

At year end, a company has non-convertible debt, ordinary shares, and employee stock options outstanding. The company's capital structure is considered to be: A- complex, because the company has both debt and equity. B- complex, because the options are convertible into ordinary shares. C- simple, if the options are antidilutive.

Compared to the efficient frontier of risky assets, the dominant capital allocation line has higher rates of return for levels of risk greater than the optimal risky portfolio because of the investor's ability to: A- lend at the risk-free rate. B- borrow at the risk-free rate. C- purchase the risk-free asset.

Compared to using a finance lease, a lessee that makes use of an operating lease will most likely report higher: A- debt. B- rent expense. C- cash flow from operating activity.

Compared to using the FIFO method to account for inventory, during periods of rising prices, a company using the LIFO method is most likely to report higher: A- net income. B- cost of sales. C- income taxes.

If a firm's long-run average total cost increases by 6% when output is increased by 6%, the firm is experiencing: A- economies of scale. B- diseconomies of scale. C- constant returns to scale.

If the base currency in a forward exchange rate quote is trading at a forward discount, which of the following statements is most accurate? A- The forward points will be positive. B- The forward percentage will be negative. C- The base currency is expected to appreciate versus the price currency.

In a securitization, the collateral is initially sold by the: A- issuer. B- depositor. C- underwriter.

In contrast to normal distributions, lognormal distributions: A- are skewed to the left. B- have random variables that cannot be negative. C- are more suitable for describing asset returns than asset prices.

Industry overcapacity and increased cost cutting characterize which stage of the industry life cycle? A- Growth. B- Shakeout. C- Maturity.

Information about a company's objectives, strategies, and significant risks are most likely to be found in the: A- auditor's report. B- management commentary. C- notes to the financial statements.

Movement along the demand curve for good X occurs due to a change in: A- income. B- the price of good X. C- the price of a substitute for good X.

Mustard Seed PLC adheres to IFRS. It recently purchased inventory for €100 million and spent €5 million for storage prior to selling the goods. The amount it charged to inventory expense (€ millions) was closest to: A- €95. B- €100. C- €105.

Neural networks are an example of: A- machine learning. B- artificial intelligence. C- algorithmic trading applications.

Nikolai Kondratieff concluded in the 1920s that since the 1780s, Western economies have generally followed a cycle of how many years? A- 18. B- 54. C- 76.

Securitization is beneficial for banks because it: A- repackages bank loans into simpler structures. B- increases the funds available for banks to lend. C- allows banks to maintain ownership of their securitized assets.

Shares which have been repurchased by a company and not canceled are best described as: A- other reserves. B- treasury shares. C- minority interest.

The "change in polarity" principle states which of the following? A- Once an uptrend is broken, it becomes a downtrend. B- Once a resistance level is breached, it becomes a support level. C- The short-term moving average has crossed over the longer-term moving average.

The "second-order" effect on a bond's percentage price change given a change in yield-to-maturity can be best described as: A- duration. B- convexity. C- yield volatility.

The analytical tool that would be most appropriate for an analyst to use to identify the percentage of a company's assets that are liquid is the: A- cash ratio. B- common-size balance sheet. C- current ratio.

The assumption that the effects of transactions and other events are recognized when they occur, not when the cash flows occur, is called: A- relevance. B- accrual basis. C- going concern.

The benefit to the issuer of a deferred coupon bond is most likely related to: A- tax management. B- cash flow management. C- original issue discount price.

The inflation rate most likely relied on to determine public economic policy is: A- core inflation. B- headline inflation. C- index of food and energy prices.

The information provided by a balance sheet item is limited because of uncertainty regarding: A- measurement of its cost or value with reliability. B- the change in current value following the end of the reporting period. C- the probability that any future economic benefit will flow to or from the entity.

The potential benefits of allocating a portion of a portfolio to alternative investments include: A- ease of manager selection. B- improvement in the portfolio's risk-return relationship. C- accessible and reliable measures of risk and return.

The sale of a building for cash would be classified as what type of activity on the cash flow statement? A- Operating. B- Investing. C- Financing.

The single monthly mortality rate (SMM) most likely: A- increases as extension risk rises. B- decreases as contraction risk falls. C- stays fixed over time when the standard prepayment model remains at 100 PSA.

Which of the following can be measured directly? A- Potential GDP. B- Labor productivity. C- Total factor productivity.

Which of the following characteristics is most likely to differentiate investment property from property, plant, and equipment? A- It is tangible. B- It earns rent. C- It is long-lived.

Which of the following chronic deficit conditions is least alarming to the deficit country's creditors? A- High consumption. B- High private investment. C- High government spending.

Which of the following concerns would most likely motivate a manager to make conservative accounting choices? A- Attention to future career opportunities B- Expected weakening in the business environment C- Debt covenant violation risk in the current period

Which of the following conditions conducive to issuing low-quality financial reports is most likely a result of poor internal controls? A- Rationalization B- Opportunity C- Motivation

Which of the following correlation coefficients indicates the weakest linear relationship between two variables? A- -0.67 B- -0.24 C- 0.33

Which of the following derivatives is least likely to have a value of zero at initiation of the contract? A- Futures B- Options C- Forwards

Which of the following items is most likely to be classified as a current asset? A- A trade payable due to be settled within one year B- A receivable expected to be collected within one operating cycle C- Goodwill attributable to an acquisition made in the most recent reporting period

Which of the following least likely describes an advantage of investing in hedge funds through a fund of funds? A fund of funds may provide investors with: A- access to due diligence expertise. B- lower fees because of economies of scale. C- access to managers who can negotiate better redemption terms.

Which of the following limit buy orders would be the most likely to go unexecuted? A- A marketable order. B- An order behind the market. C- An order making a new market.

Which of the following market anomalies is inconsistent with weak-form market efficiency? A- Earnings surprise. B- Momentum pattern. C- Closed-end fund discount.

Which of the following statements best portrays the full implementation of post-financial-crisis regulations in the OTC derivatives market? A- Transactions are no longer private. B- Most transactions need to be reported to regulators. C- All transactions must be cleared through central clearing agencies.

Which of the following statements describing a par curve is incorrect? A- A par curve is obtained from a spot curve. B- All bonds on a par curve are assumed to have different credit risk. C- A par curve is a sequence of yields-to-maturity such that each bond is priced at par value.

Which of the following statements is least accurate? The discounted payback period: A- frequently ignores terminal values. B- is generally shorter than the regular payback. C- is the time it takes for the present value of the project's cash inflows to equal the initial cost of the investment.

Which of the following types of indexes is most appropriate as a model portfolio for a consumer goods exchange-traded fund (ETF)? A- Fundamentally weighted B- Sector C- Style

A write down of the value of inventory to its net realizable value will have a positive effect on the: A- balance sheet. B- income statement. C- inventory turnover ratio.

Among other things, an organization's risk tolerance should most likely reflect its: A- perception of market stability. B- size. C- competitive position.

An audit opinion of a company's financial reports is most likely intended to: A- detect fraud. B- reveal misstatements. C- assure that financial information is presented fairly.

An effective risk management process used by alternative investment funds most likely includes: A- in-house valuations. B- internal custody of assets. C- segregation of risk and investment process duties.

Assume an asset pays no dividends or interest, and also assume that the asset does not yield any non-financial benefits or incur any carrying cost. At initiation, the price of a forward contract on that asset is: A- lower than the value of the contract. B- equal to the value of the contract. C- greater than the value of the contract.

Assume economic activity is accelerating, inflation is increasing modestly, and unemployment is low. The economy is most likely in which phase of the business cycle? A- Peak B- Early expansion C- Late expansion

During the lockout period of a credit card ABS: A- no new receivables are added to the pool. B- investors do not receive interest payments. C- investors do not receive principal payments.

For a swap in which a series of fixed payments is exchanged for a series of floating payments, the parties to the transaction: A- designate the value of the underlying at contract initiation. B- value the underlying solely on the basis of its market value at the end of the swap. C- value the underlying sequentially at the time of each payment to determine the floating payment.

For an asset with a current price of 100, which of the following price targets is most likely based on a Fibonacci ratio? A- 129.40. B- 145.60. C- 161.80.

If interest rates are expected to increase, the coupon payment structure most likely to benefit the issuer is a: A- step-up coupon. B- inflation-linked coupon. C- cap in a floating-rate note.

In an efficient market, the change in a company's share price is most likely the result of: A- insiders' private information. B- the previous day's change in stock price. C- new information coming into the market.

In an inflationary environment, a LIFO liquidation will most likely result in an increase in: A- inventory. B- accounts payable. C- operating profit margin.

In contrast to gambling, derivatives speculation: A- has a positive public image. B- is a form of financial risk taking. C- benefits the financial markets and thus society.

In credit card receivable ABSs, principal cash flows can be altered only when the: A- lockout period expires. B- excess spread account is depleted. C- early amortization provision is triggered.

In order to assess a company's ability to fulfill its long-term obligations, an analyst would most likely examine: A- activity ratios. B- liquidity ratios. C- solvency ratios.

In which of the following life-cycle phases are price wars most likely to be absent? A- Mature. B- Decline. C- Growth.

Like traditional finance models, the behavioral theory of loss aversion assumes that investors dislike risk; however, the dislike of risk in behavioral theory is assumed to be: A- leptokurtic. B- symmetrical. C- asymmetrical.

Loss severity is best described as the: A- default probability multiplied by the loss given default. B- portion of a bond's value recovered by bondholders in the event of default. C- portion of a bond's value, including unpaid interest, an investor loses in the event of default.

The value of the cumulative distribution function F(x), where x is a particular outcome, for a discrete uniform distribution: A- sums to 1. B- lies between 0 and 1. C- decreases as x increases.

Using hypothesized parameter values and a random number generator to study the behavior of certain asset returns is part of: A- historical analysis. B- Monte Carlo simulation. C- standardizing a random variable.

When flipping three coins simultaneously, the number of outcomes that contain at least two heads is most likely: A- eight. B- four. C- three.

Which of the following is a property of two dependent events? A- The two events must occur simultaneously. B- The probability of one event influences the probability of the other event. C- The probability of the two events occurring is the product of each event's probability.

Which of the following is characteristic of the normal distribution? A- Asymmetry B- Kurtosis of 3 C- Definitive limits or boundaries

Which of the following is least likely an example of a discrete random variable? A- The number of stocks a person owns. B- The time spent by a portfolio manager with a client. C- The number of days it rains in a month in Iowa City.

Which of the following statements least accurately describes the binomial distribution? A- It is a discrete distribution. B- The probability of an outcome of zero is zero. C- The combination formula is used in computing probabilities.

Which parameter equals zero in a normal distribution? A- Kurtosis B- Skewness C- Standard deviation

Which sampling bias is most likely investigated with an out-of-sample test? A- Look-ahead bias B- Data-mining bias C- Sample selection bias

Which of the following statements best describes a feature of any probability function of a random variable? The probability function: A- has a value between −1 and +1. B- has the same value for all outcomes. C- specifies the likelihood that a particular outcome of a random variable will occur.

Highly risk-averse investors will most likely invest the majority of their wealth in: A- risky assets. B- risk-free assets. C- the optimal risky portfolio.

Holding all else constant, a company that acquires a patent through external purchase rather than developing it internally is most likely to report: A- lower amounts of assets. B- higher investing cash outflows. C- higher operating cash outflows.

Which of the following sources of information used by analysts is found outside a company's annual report? A- Auditor's report B- Peer company analysis C- Management's discussion and analysis

Which of the following hedge fund strategies is most likely categorized as an event-driven strategy? A- Fixed-income convertible arbitrage B- Quantitative directional C- Merger arbitrage

Which of the following is most likely a cross-sectional anomaly in financial markets? A- Closed-end fund discount B- Overreaction effect C- Value effect

Which of the following is most likely a form of internal credit enhancement? A- Letter of credit B- Surety bond C- Overcollateralization

The buyer of an option has a contingent claim in the sense that the option creates: A- a right. B- an obligation. C- a linear payoff with respect to gains and losses of the underlying.

The clearing and settlement process of an exchange-traded derivatives market: A- provides a credit guarantee. B- provides transparency and flexibility. C- takes longer than that of most securities exchanges.

A behavioral bias in which an investor assesses probabilities of outcomes depending on how similar they are to the current state is called: A- conservatism. B- representativeness. C- narrow framing.

Assume a call option's strike price is initially equal to the price of its underlying asset. Based on the binomial model, if the volatility of the underlying decreases, the lower of the two potential payoff values of the hedge portfolio: A- decreases. B- remains the same. C- increases.

Credit spreads tend to widen as: A- the credit cycle improves. B- economic conditions worsen. C- broker-dealers become more willing to provide capital.

For a fixed-rate bond, Macaulay duration is: A- unrelated to the bond's yield to maturity. B- inversely related to the bond's yield to maturity. C- positively related to the bond's yield to maturity.

For a lessor, the leased asset appears on the balance sheet and continues to be depreciated when the lease is classified as: A- a sales-type lease. B- an operating lease. C- a financing lease.

For the issuer, a sinking fund arrangement is most similar to a: A- term maturity structure. B- serial maturity structure. C- bondholder put provision.

For the price of a futures contract to be greater than the price of an otherwise equivalent forward contract, interest rates must be: A- uncorrelated with futures prices. B- positively correlated with futures prices. C- negatively correlated with futures prices.

For two equally rated speculative grade bonds, what factor is least likely to account for differences in their valuation? A- Severity of loss B- Probability of default C- Perceived creditworthiness of the companies

For which of the examples given would common-size income statements generally provide the greatest insight? A- A liquidity analysis of two companies within the same industry B- A time-series analysis of a rapidly expanding single company C- A comparison of similarly sized companies from different industries

For which of the following indexes will rebalancing occur most frequently? A- A price-weighted index. B- An equal-weighted index. C- A market capitalization-weighted index.

From which of the following charts can an analyst read the opening price for a trading period? A- Line chart. B- Candlestick chart. C- Point-and-figure chart.

Greater pricing power is most likely to result from greater: A- unused capacity. B- market concentration. C- volatility in marketshare.

Hedge funds are least likely to have restrictions concerning: A- the withdrawal of invested funds. B- the use of derivatives. C- the number of investors in the fund.

High-water marks are typically used when calculating the incentive fee on hedge funds. They are most likely used by clients to: A- avoid prime brokerage fees. B- avoid paying twice for the same performance. C- claw back the management fees.

The sampling error is best described as the: A- sample standard deviation divided by the square root of the sample size. B- difference between the observed value of a statistic and the quantity it is intended to estimate. C- sum of squared deviations from the mean divided by the sample size minus one.

A manager will select 20 bonds out of his universe of 100 bonds to construct a portfolio. Which formula provides the number of possible portfolios? A- Permutation formula B- Multinomial formula C- Combination formula

Assuming no short selling, a diversification benefit is most likely to occur when the correlations among the securities contained in the portfolio are: A- greater than +1. B- equal to +1. C- less than +1.

For a binomial random variable with five trials, and a probability of success on each trial of 0.50, the distribution will be: A- skewed. B- uniform. C- symmetric.

For tests concerning the differences between two normally distributed population means with equal but unknown variances, which of the following test statistics is the most appropriate? A- z-test B- approximate t-test C- t-test

In probability theory, exhaustive events are best described as events: A-with a probability of zero. B- that are mutually exclusive. C- that include all potential outcomes.

The best approach for creating a stratified random sample of a population involves: A- drawing an equal number of simple random samples from each subpopulation. B- selecting every kth member of the population until the desired sample size is reached. C- drawing simple random samples from each subpopulation in sizes proportional to the relative size of each subpopulation.

Two events A and B are independent if the probability of occurrence of A: A- equals the product of the individual probabilities of occurrence of A and B. B- is related to the occurrence of B. C- does not affect the probability of occurrence of B.

Use of a nonparametric test is most appropriate when the: A- distribution is symmetrical. B- population variance is unknown. C- data are given in ranks.

A chi-square test is most appropriate for tests concerning: A- a single variance. B- differences between two population means with variances assumed to be equal. C- differences between two population means with variances assumed to not be equal.

A decrease in both the labor force participation ratio and the unemployment rate is most likely caused by: A- an increase in discouraged workers. B- an increase in underemployed workers. C- a decrease in voluntarily unemployed persons.

A commercial mortgage-backed security (CMBS) does not meet the debt-to-service coverage at the loan level necessary to achieve a desired credit rating. Which of the following features would most likely improve the credit rating of the CMBS? A- Subordination B- Call protection C- Balloon payments

When investing in unsponsored depository receipts, the voting rights to the shares in the trust belong to: A- the depository bank. B- the investors in the depository receipts. C- the issuer of the shares held in the trust.

Relative to purchasing an asset, leases generally: A- have more restrictive provisions than other forms of borrowing. B- provide less costly financing in the form of lower fixed interest rates. C- require a larger down payment.

Resources controlled by a company as a result of past events are: A- equity. B- assets. C- liabilities.

Reviewing the MD&A section of an annual report is important because: A- future revenue projections must be disclosed. B- accounting policies may require subjective judgment by management. C- management commentary is typically unaudited.

Risk budgeting can best be described as: A- setting an annual limit on risk taken. B- selecting assets by their risk characteristics. C- establishing a maximum amount of risk to be taken.

Risk shifting is most likely achieved by: A- risk mitigation. B- using derivative securities. C- transferring risk to an insurance company.

Which attribute of financial reports would most likely be evaluated as optimal in the financial reporting spectrum? A- Conservative accounting choices B- Sustainable and adequate returns C- Emphasized pro forma earnings measures

Which group of company stakeholders would be least affected if the firm's financial position weakens? A- Suppliers B- Customers C- Managers and employees

Which industry characteristic most likely has a positive effect on a company's ability to service debt? A- Low barriers to entry in the industry B- High number of suppliers to the industry C- Broadly dispersed market share among large number of companies in the industry

Which of the following represents a responsibility of a company's board of directors? A- Implementation of strategy B- Enterprise risk management C- Considering the interests of shareholders only

According to IFRS, all of the following pieces of information about intangible assets must be disclosed in a company's financial statements and footnotes except for: A- fair value. B- impairment loss. C- amortization rate.

According to U.S. GAAP, an asset is impaired when: A- the firm cannot. fully recover the carrying amount of the asset through operations. B- accumulated depreciation plus salvage value exceeds acquisition cost. C- the present value of future cash flows from an asset exceeds its carrying value.

According to U.S. GAAP, the coupon payment on a bond is reported as: A- an operating cash outflow. B- a financing cash outflow. C- part operating cash outflow and part financing cash outflow.

For parallel shifts in the benchmark yield curve, key rate durations indicate the same interest rate sensitivity as: A- effective duration. B- modified duration. C- Macaulay duration.

Samsung Electronics Co has issued a five-year bond with a par value of $1,000 and a coupon rate of 6.5%. This bond is most likely to be classified as a: A- capital market security. B- surety bond. C- consol.

When computing the cash flows for a capital project, which of the following is least likely to be included? A- Financing costs B- Opportunity costs C- Tax effects

When conducting a company analysis, the analysis of demand for a company's product is least likely to consider the: A- company's cost structure. B- motivations of the customer base. C- product's differentiating characteristics.

When considering two mutually exclusive capital budgeting projects with conflicting rankings—one has a higher positive net present value (NPV), the other has a higher internal rate of return (IRR)—the most appropriate conclusion is to choose the project with the: A- higher NPV. B- higher IRR. C- shorter payback.

When constructing the optimal portfolios for investors with different risk preferences, the investor with the higher risk aversion is most likely to have a: A- lower expected return. B- steeper capital allocation line. C- flatter indifference curve.

A stock is declining in price and reaches a price range wherein buying activity is sufficient to stop the decline. This range is best described as the: A- change in polarity point. B- resistance level. C- support level.

A swap that involves the exchange of a fixed payment for a floating payment can be interpreted as a series of forward contracts with different expiration dates. These implied forward contracts will most likely have: A- different prices due to differences in the price of the underlying at expiration. B- identical prices. C- different prices due to differences in the cost of carry.

A top-down security analysis begins by: A- analyzing a firm's business prospects and quality of management. B- identifying the most attractive companies within each industry. C- examining economic conditions.

Agency bonds are issued by: A- local governments. B- national governments. C- quasi-government entities.

Compared to shorter duration bonds, longer duration bonds: A. have smaller bid-ask spreads. B- are less sensitive to credit spreads. C- have less certainty regarding future credit worthiness.

When a company pays its rent in advance, its balance sheet will reflect a reduction in: A- assets and liabilities. B- assets and shareholders' equity. C- one category of assets and an increase in another.

When a database eliminates companies that cease to exist because of a merger or bankruptcy, this can result in: A- look-ahead bias. B- back-testing bias. C- survivorship bias.

When a firm can choose where in the cash flow statement to classify interest received, which of the following choices is the most appropriate? A- As an financing activity under IFRS B- As an investing activity under US GAAP C- As a operating activity under IFRS

Which of the following is most likely to increase after an increase in aggregate real personal income? A- Equity prices B- Building permits for new private housing units C- The ratio of consumer installment debt to income

Which of the following is most likely to reflect conservative accounting choices? A- Decreased reported earnings in later periods B- Increased reported earnings in the period under review C- Increased debt reported on the balance sheet at the end of the current period

Which of the following is most likely used in a present value model? A- Enterprise value. B- Price to free cash flow. C- Free cash flow to equity.

An index of 200 mid-cap growth stocks is best described as: A- a style index. B- a sector index. C- a broad market index.

Which of the following is most similar to a short position in the underlying asset? A- Buying a put. B- Writing a put. C- Buying a call.

Under conditions of perfect competition, in the long run firms will most likely earn: A- normal profits. B- positive economic profits. C- negative economic profits.

A Competition should drive prices down to long-run marginal cost, resulting in only normal profits being earned.

A country's balance of payments accounts show the following: - A net inflow of capital transfers. - Greater sales than purchases of non-financial assets. - Greater foreign-owned assets in the country than government-owned assets abroad. The country is most accurately described as having: A- a capital account deficit. B- a current account deficit. C- a financial account deficit.

A credit analyst is least likely to use matrix pricing to estimate the required yield and price of a(n): A- newly underwritten bond. B- actively traded speculative grade bond. C- inactively traded investment grade bond.

Derivatives are similar to insurance in that both: A- have an indefinite life span. B- allow for the transfer of risk from one party to another. C- allow for the transformation of the underlying risk itself.

Accounting choices within GAAP that decrease reported performance in the current period and may increase performance in later periods are most likely examples of: A- aggressive accounting. B- conservative accounting. C- earnings that are not sustainable.

A firm is likely to operate in the short run as long as price is at least as great as: A- marginal cost. B- average total cost. C- average variable cost.

A decrease in the real exchange rate (quoted in terms of domestic currency per unit of foreign currency) is most likely to be associated with an increase in which of the following? A- Foreign price level. B- Domestic price level. C- Nominal exchange rate.

A disadvantage of the EV method for valuing equity is that the following information may be difficult to obtain: A- Operating income. B- Market value of debt. C- Market value of equity.

A distribution with excess kurtosis less than zero is termed: A- mesokurtic. B- platykurtic. C- leptokurtic.

A downtrend line is constructed by drawing a line connecting: A- the lows of the price chart. B- the highs of the price chart. C- the highest high to the lowest low of the price chart.

A downward-sloping term structure of yield volatility most likely indicates increased volatility in: A- inflation expectations. B- short-term bond yields to maturity. C- long-term bond yields to maturity.

A senior unsecured credit instrument holds a higher priority of claims than one ranked as: A- mortgage debt. B- second lien loan. C- senior subordinated.

A floating-rate note has a quoted margin of +50 basis points and a required margin of +75 basis points. On its next reset date, the price of the note will be: A- equal to par value. B- less than par value. C- greater than par value.

A government entity that regulates an authorized monopoly will most likely base regulated prices on: A- marginal cost. B- long run average cost. C- first degree price discrimination.

A hedge fund invests primarily in distressed debt. Quoted market prices are available for the underlying holdings but they trade infrequently. Which of the following will the hedge fund most likely use in calculating net asset value for trading purposes? A- Average quotes B- Average quotes adjusted for liquidity C- Bid prices for short positions and ask prices for long positions

A hedge fund that engages primarily in distressed debt investing and merger arbitrage is best described as using: A- a macro strategy. B- an event-driven strategy. C- a relative value strategy.

A high-quality financial report may reflect: A- earnings smoothing. B- low earnings quality. C- understatement of asset impairment.

A lease may be classified as a direct financing lease by the lessor under: A- IFRS only. B- U.S. GAAP only. C- either IFRS or U.S.GAAP.

Diseconomies of scale most likely result from: A- specialization in the labor force. B- overlap of business functions and product lines. C- discounted prices on resources when buying in larger quantities.

During a period of increasing prices, compared to reporting under LIFO, a firm that reports using average cost for inventory will have a: A. lower gross margin. B- higher current ratio. C- higher asset turnover.

During an economic recovery, a lagging unemployment rate is most likely attributable to: A- businesses quickly rehiring workers. B- new job seekers entering the labor force. C- underemployed workers transitioning to higher-paying jobs.

A liquid asset can be easily converted into cash in a short amount of time at: A- any price. B- a price close to fair market value. C- a price above the original purchase value.

A manager who evaluates portfolios' investment performance adjusted for systematic risk is most likely to rank portfolios based on their: A- Sharpe ratios. B- Treynor measures. C- M-squared measures.

A measure of how the returns of two risky assets move in relation to each other is: A- the range. B- the covariance. C- the standard deviation.

A mechanism by which an issuer may be able to offer additional bonds to the general public without preparing a new and separate offering circular best describes: A- the grey market. B- a shelf registration. C- a private placement.

An equity portfolio manager is evaluating her sector allocation strategy for the upcoming year. She expects the global economy to experience a slowdown period for the next two years. Furthermore, she believes that companies will be facing diminishing growth rates with respect to revenues and profits. On the basis of these beliefs, the portfolio manager will most likely overweight: A- materials. B- consumer staples. C- autos.

An estimator with an expected value equal to the parameter that it is intended to estimate is described as: A- efficient. B- unbiased. C- consistent.

For a small sample from a normally distributed population with unknown variance, the most appropriate test statistic for the mean is the: A- z-statistic. B- t-statistic. C- χ2 statistic.

The graph of the capital asset pricing model is the: A- capital market line. B- security market line. C- security characteristic line.

An example of risk transfer combined with self-insurance is most likely: A- a bond portfolio hedged with an interest rate option. B- an insurance policy with a deductible. C- a bank that establishes a loan loss reserve fund.

An exchange rate: A- is most commonly quoted in real terms. B- is the price of one currency in terms of another. C- between two currencies ensures they are fully convertible.

An increase in government spending would shift the: A- IS curve and the LM curve. B- IS curve and the aggregate demand curve. C- LM curve and the aggregate demand curve.

An increase in the official policy rate will most likely lead to: A- gradual increases in commercial banks' base rates. B- reduced credit availability. C- contracting commercial bank liquidity.

An increase in the price level would shift the: A- IS curve. B- LM curve. C- aggregate demand curve.

An increase in the tax rate causes the balance sheet value of a deferred tax asset to: A- decrease. B- increase. C- remain unchanged.

A member or candidate who has supervisory responsibility: A- should place particular emphasis on enforcing investment-related compliance policies. B- is responsible for instructing those to whom he has delegated authority about methods to detect and prevent violations of the law and the Code and Standards. C- has complied with the Standards if she reports employee violations to upper management and provides a written warning to the employee to cease such activities.

A momentum indicator based on the ratio of price increases to price decreases over the last 14 days is most likely: A- a stochastic oscillator. B- a Relative Strength Index. C- a moving average convergence/divergence oscillator.

A mortgage-backed security with a senior/subordinated structure is said to feature: A- time tranching. B- credit tranching. C- a pass-through structure.

A nonparametric test is most appropriate when: A- comparing differences between means. B- data are given in ranks. C- data meet distributional assumptions.

A product is part of a price index based on a fixed consumption basket. If, over time, the product's quality improves while its price stays constant, the measured inflation rate is most likely: A- unaffected. B- biased upward. C- biased downward.

A profession is most likely described as a group of people that: A- has a common level of basic knowledge about a particular subject. B- monitors its members based on an agreed-on code of ethics. C- puts the interests of its members first.

An increase in which of the following is most likely when stock market sentiment is becoming more bullish? A- Short interest ratio. B- Margin debt outstanding. C- Put/call ratio for a stock index.

A prolonged period of an official interest rate very close to zero without an increase in economic growth most likely suggests: A- quantitative easing must be limited to be successful. B- there may be limits to the effectiveness of monetary policy. C- targeting reserve levels is more important than targeting interest rates.

A real estate property valuation would least likely use: A- an income approach. B- an asset-based approach. C- a comparable sales approach.

A report on long-term stock returns focused exclusively on all currently publicly traded firms in an industry is most likely susceptible to: A- look-ahead bias. B- survivorship bias. C- intergenerational data mining.

A repurchase agreement is most comparable to a(n): A- interbank deposit. B- collateralized loan. C- negotiable certificate of deposit.

A research analyst is facing a moral dilemma and decides to use an ethical decision-making framework. After looking at the facts at hand and identifying the situational influences, he still cannot make a decision on the best course of action. His least appropriate next step is to: A- determine what additional information is needed. B- decide, act, monitor, and reflect. C- ask someone else to give guidance.

A stronger domestic currency relative to foreign currencies is most likely to result in: A- a shift in the aggregate supply curve toward lower supply. B- a shift in the aggregate demand curve toward lower demand. C- a movement along the aggregate demand curve towards higher prices.

A tree diagram is most likely used when dealing with investment problems that involve outcomes that are: A- independent at each node. B- mutually exclusive. C- unconditional at each node.

A unique feature of hedge fund indexes is that they: A- are frequently equal weighted. B- are determined by the constituents of the index. C- reflect the value of private rather than public investments.

A written investment policy statement (IPS) is most likely to succeed if: A- it is created by a software program to assure consistent quality. B- it is a collaborative effort of the client and the portfolio manager. C- it reflects the investment philosophy of the portfolio manager.

A yield curve constructed from a sequence of yields-to-maturity on zero-coupon bonds is the: A- par curve. B- spot curve. C- forward curve.

According to IFRS, all of the following pieces of information about property, plant, and equipment must be disclosed in a company's financial statements and footnotes except for: A- useful lives. B- acquisition dates. C- amount of disposals.

According to Real Business Cycle models, an economic contraction is most likely caused by: A- sticky wages. B- rising energy prices. C- a contraction in the money supply.

According to the Code of Ethics, members of CFA Institute and candidates for the CFA designation must: A- maintain their professional competence to exercise independent professional judgment. B- place the integrity of the investment profession and the interests of clients above their own personal interests. C- practice in a professional and ethical manner with the public, clients, and others in the global capital markets.

According to the Duties to Clients standard, suitability requires members and candidates in an advisory relationship with a client to: A- place their clients' interests before their own interests. B- consider investments in the context of the client's total portfolio. C- not knowingly make misrepresentations relating to recommendations.

The least likely cause of a decrease in aggregate demand is: A- higher taxes. B- a weak domestic currency. C- a fall in capacity utilization.

According to the Heckscher-Ohlin model, when trade opens: A- the scarce factor gains relative to the abundant factor in each country. B- the abundant factor gains relative to the scarce factor in each country. C- income is redistributed between countries but not within each country.

According to the Solow neoclassical growth model, sustained long-term growth in potential GDP is best explained by: A- capital deepening investments. B- technological change. C- growth in labor supply.

A TRIN with a value of less than 1.0 indicates: A- the market is in balance. B- there is more volume in rising shares. C- there is more volume in declining shares.

A Type II error is best described as: A- rejecting a true null hypothesis. B- failing to reject a false null hypothesis. C- failing to reject a false alternative hypothesis.

A 35-year-old financial analyst expects to retire at the age of 65 and is interested in investing to fund her retirement. She describes herself as being financially astute with average risk tolerance. Which asset class is least likely to be suitable for a majority allocation in her portfolio to meet her retirement needs? A- Long-term bonds B- US Treasury bills C- Exchange-listed equities

A BRL/MXN spot rate is listed by a dealer at 0.1378. The 6-month forward rate is 0.14193. The 6-month forward points are closest to: A- -41.3. B- +41.3. C- +299.7.

A British company listed on AIM (formerly the Alternative Investment Market) of the London Stock Exchange announced the sale of 6,686,665 shares to a small group of qualified investors at £0.025 per share. Which of the following best describes this sale? A- Shelf registration. B- Private placement. C- Initial public offering.

A German company that exports machinery is expecting to receive $10 million in three months. The firm converts all its foreign currency receipts into euros. The chief financial officer of the company wishes to lock in a minimum fixed rate for converting the $10 million to euro but also wants to keep the flexibility to use the future spot rate if it is favorable. What hedging transaction is most likely to achieve this objective? A- Selling dollars forward. B- Buying put options on the dollar. C- Selling futures contracts on dollars.

Although he knows security returns are not independent, a colleague makes the claim that because of the central limit theorem, if we diversify across a large number of investments, the portfolio standard deviation will eventually approach zero as n becomes large. Is he correct? A- Yes B- No C- Not enough information provided to answer.

B No. First the conclusion on the limit of zero is wrong; second, the support cited for drawing the conclusion (i.e., the central limit theorem) is not relevant in this context.

Erin Chou is reviewing a profitable investment project that has a conventional cash flow pattern. If the cash flows for the project, initial outlay, and future after-tax cash flows all double, Chou would predict that the IRR would: A- increase and the NPV would increase. B- stay the same and the NPV would increase. C- stay the same and the NPV would stay the same.

B The IRR would stay the same because both the initial outlay and the after-tax cash flows double, so that the return on each dollar invested remains the same. All of the cash flows and their present values double. The difference between total present value of the future cash flows and the initial outlay (the NPV) also doubles.

A company incurred the following unrealized holding gains in the current year: $100,000 on securities held for trading $500,000 on the foreign currency translation adjustment of a self-sustaining non-domestic subsidiary Other comprehensive income for the year is closest to: A- $600,000. B- $100,000. C- $500,000.

A company doing business in a monopolistically competitive market will most likely maximize profits when its output quantity is set such that: A- average cost is minimized. B- marginal revenue equals average cost. C- marginal revenue equals marginal cost.

A company has total variable costs of $4 million and fixed costs of $3 million. Based on this information, the company will stay in the market in the long term if total revenue is at least: A- $3.0 million. B- $4.5 million. C- $7.0 million.

The primary difference between P/E multiples based on comparables and P/E multiples based on fundamentals is that fundamentals-based P/Es take into account: A- future expectations. B- the law of one price. C- historical information.

The priority of claims for senior subordinated debt is: A- lower than for senior unsecured debt. B- the same as for senior unsecured debt. C- higher than for senior unsecured debt.

A defined benefit plan with a large number of retirees is likely to have a high need for A- income. B- liquidity. C- insurance.

A financial instrument is structured such that cash flows to the security holder increase if a specified reference rate increases. This structured financial instrument is best described as: A- a participation instrument. B- a capital protected instrument. C- a yield enhancement instrument.

A firm owns a warehouse that it rents out. Under IFRS, the firm may report the value of this asset on its balance sheet using: A- the cost model or the fair value model. B- the cost model or the revaluation model. C- the revaluation model or the fair value model.

A firm reports negative earnings for the year just ended. The price multiple of the firm's stock that is least likely to be meaningful is: A- trailing price to earnings. B- price to cash flow. C- leading price to earnings.

A firm reports net income of $40 million. The firm's financial statements disclose in Management's Discussion and Analysis that $30 million of net income is attributable to a gain on the sale of assets. Based only on this information, for this period, the firm is best described as having high quality of: A- financial reporting only. B- both earnings and financial reporting. C- neither earnings nor financial reporting.

A firm's risk management committee would be expected to do all of the following except: A- approving the governing body's proposed risk policies. B- deliberating the governing body's risk policies at the operational level. C- providing top decision-makers with a forum for considering risk management issues.

A fund manager reported a 2% mean quarterly return over the past ten years for its entire base of 250 client accounts that all follow the same investment strategy. A consultant employing the manager for 45 client accounts notes that their mean quarterly returns were 0.25% less over the same period. The consultant tests the hypothesis that the return disparity between the returns of his clients and the reported returns of the fund manager's 250 client accounts are significantly different from zero. Q. Assuming normally distributed populations with unknown population variances, the most appropriate test statistic is: A- a paired comparisons t-test. B- a t-test of the difference between the two population means. C- an approximate t-test of mean differences between the two populations.

A goal of securitization is to: A- separate the seller's collateral from its credit ratings. B- uphold the absolute priority rule in bankruptcy reorganizations. C- account for collateral's primary influence on corporate bond credit spreads.

A good is classified as an inferior good if its: A- income elasticity is negative. B- own-price elasticity is negative. C- cross-price elasticity is negative.

A key difference between a wrap account and a mutual fund is that wrap accounts: A- have assets that are owned directly by the individual. B- cannot be tailored to the tax needs of a client. C- have a lower required minimum investment.

A large country can: A- benefit by imposing a tariff. B- benefit with an export subsidy. C- not benefit from any trade restriction.

A large industrialized country has recently devalued its currency in an attempt to correct a persistent trade deficit. Which of the following domestic industries is most likely to benefit from the devaluation? A- Luxury cars. B- Branded prescription drugs. C- Restaurants and live entertainment venues.

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 lessor will record interest income if a lease is classified as: A- a capital lease. B- an operating lease. C- either a capital or an operating lease.

A limitation of calculating a bond portfolio's duration as the weighted average of the yield durations of the individual bonds that compose the portfolio is that it: A- assumes a parallel shift to the yield curve. B- is less accurate when the yield curve is less steeply sloped. C- is not applicable to portfolios that have bonds with embedded options.

A limitation on the effectiveness of auditing in ensuring financial reporting quality is that: A- detecting fraud is not the objective of audits. B- public firms are not required to obtain audit opinions. C- auditors may only issue a qualified or unqualified opinion but do not explain why.

A liquidity trap is most closely associated with: A- deflation. B- an inelastic demand for money. C- a positive nominal central bank policy rate.

A long time horizon and low liquidity requirements best describe the investment needs of: A- an endowment. B- an insurance company. C- a bank.

A low recovery rate on defaulted collateral is most likely to negatively affect the cash flows of a: A- non-agency RMBS. B- Fannie Mae RMBS. C- Ginnie Mae RMBS.

A manufacturing company receives a ratings upgrade and the price increases on its fixed-rate bond. The price increase was most likely caused by a(n): A- decrease in the bond's credit spread. B- increase in the bond's liquidity spread. C- increase of the bond's underlying benchmark rate.

A market is said to be informationally efficient if it features: A- market prices that reflect all available information about the value of the securities traded. B- timely and accurate information about current supply and demand conditions. C- many buyers and sellers that are willing to trade at prices above and below the prevailing market price.

A market rate of discount for a single payment to be made in the future is: A- a spot rate. B- a simple yield. C- a forward rate.

A market structure with relatively few sellers of a homogeneous or standardized product is best described as: A- oligopoly. B- monopoly. C- perfect competition.

A measure that is most likely well suited to analyzing the performance of alternative investments that may exhibit negative skewness in returns is the: A- Sortino ratio. B- Sharpe ratio. C- safety-first measure.

A monopolist will expand production until MR = MC and charge a price determined by: A- the demand curve. B- the marginal cost curve. C- the average total cost curve.

A national government responds to a severe recession by funding numerous infrastructure projects using deficit spending. Which school of economic thought is most consistent with such action. A- Keynesian B- Monetarist C- Neoclassical

A net pension asset or liability can be associated with: A- defined benefit pension plans only. B- defined contribution pension plans only. C- either defined benefit or defined contribution pension plans.

A professional code of conduct: A- can increase public trust in the profession. B- guarantees that members will adhere to a minimum level of ethical conduct. C- includes standards that provide guidance for specific behaviors.

A profit maximum is least likely to occur when: A- average total cost is minimized. B- marginal revenue equals marginal cost. C- the difference between total revenue and total cost is maximized.

A reduction in the statutory tax rate would most likely benefit the company's: A- income statement and balance sheet. B- income statement but not the balance sheet. C- balance sheet but not the income statement.

A return generating model is least likely to be based on a security's exposure to: A- statistical factors. B- macro economic factors. C- fundamental factors.

A stock has been in a downtrend for several days. When its price decreases to near $30, many investors enter orders to buy the stock and the price increases to $31. This is most likely an example of: A- a support level. B- a resistance level. C- a change in polarity.

A stock is selling at $50. An investor's valuation model estimates its intrinsic value to be $40. Based on her estimate, she would most likely place: A- a short-sale order. B- a stop order to buy. C- a market order to buy.

A successful portfolio risk budget will most likely: A- lead to investment in assets with the highest return per unit of risk. B- be based on multiple sources of risk. C- produce superior performance compared to passive investing.

A swap is: A- more like a forward than a futures contract. B- subject to simultaneous default by both parties. C- based on an exchange of two series of fixed cash flows.

A wireless phone manufacturer introduced a next-generation phone that received a high level of positive publicity. Despite running several high-speed production assembly lines, the manufacturer is still falling short in meeting demand for the phone nine months after introduction. Which of the following statements is the most plausible explanation for the demand/supply imbalance? A- The phone price is low relative to the equilibrium price. B- Competitors introduced next-generation phones at a similar price. C- Consumer incomes grew faster than the manufacturer anticipated.

A written investment policy statement should most appropriately: A- establish a target asset allocation strategy. B- focus predominantly on a long-term time horizon. C- include risk objectives that are consistent with the investor's return requirements.

ANZ Corporation has issued a three-year bond that makes semiannual interest payments in March and September at the coupon rate of six-month Libor + 250 bps. This bond is most likely referred to as a: A- floating-rate note. B- plain vanilla bond. C- pure discount bond.

According to US GAAP, the payment of cash dividends during the year will most likely affect the cash flow from which type of activity? A- Financing B- Investing C- Operating

According to real business cycle theory, business cycles result from: A- rational responses to external shocks. B- inappropriate changes in monetary policy. C- increases and decreases in business confidence.

According to the Austrian school, the most appropriate government response to an economic recession is to: A- allow the market to adjust naturally. B- maintain steady growth in the money supply. C- decrease the market rate of interest below its natural value.

According to the Conceptual Framework for Financial Reporting, which of the following is not an enhancing qualitative characteristic of information in financial statements? A- Accuracy. B- Timeliness. C- Comparability.

According to the Standard on independence and objectivity, members and candidates: A- may accept gifts or bonuses from clients. B- may not accept compensation from an issuer of securities in return for producing research on those securities. C- should consider credit ratings issued by recognized agencies to be objective measures of credit quality.

According to the theory of money neutrality, money supply growth does not affect variables such as real output and employment in: A- the long run. B- the short run. C- the long and short run.

According to which business cycle theory should expansionary monetary policy be used to fight a recession? A- Keynesian school. B- Monetarist school. C- New Classical school.

Accounts payable are: A- amounts a company owes its vendors for purchase of goods and services. B- financial liabilities owed by a company through a formal loan agreement. C- reported in a different section of the balance sheet from notes payable due in one year.

After a two-for-one stock split, which of the following will most likely change relative to its pre-split value? A- Earnings per share (EPS) B- Price-to-earnings ratio (P/E) C- Dividend payout ratio

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.

All else being equal, as the correlation between two assets approaches +1.0, the diversification benefits: A- decrease. C- stay the same. B- increase.

All of the following are characteristics of preference shares except: A- They are either callable or putable. B- They generally do not have voting rights. C- They do not share in the operating performance of the company.

Alternative investment funds are typically managed: A- actively. B- to generate positive beta return. C- assuming that markets are efficient.

Among developed economies, which of the following sources of economic growth is most likely to explain superior growth performance? A- Technology. B- Capital stock. C- Labor supply.

Among the Four Cs of credit analysis, the recognition of revenue prematurely most likely reflects a company's: A- character. B- covenants. C- collateral.

Amounts recorded as deferred revenue are most likely included in income when they are: A- earned. B- invoiced. C- paid.

An economic indicator that has turning points which tend to occur after the turning points in the business cycle is classified as: A- a lagging indicator. B- a leading indicator. C- a trailing indicator.

An economic peak is most closely associated with: A- accelerating inflation. B- stable unemployment. C- declining capital spending.

An economy's potential output is best represented by: A- long-run aggregate supply. B- short-run aggregate supply. C- long-run aggregate demand.

An equity analyst has been asked to estimate the intrinsic value of the common stock of Omega Corporation, a leading manufacturer of automobile seats. Omega is in a mature industry, and both its earnings and dividends are expected to grow at a rate of 3 percent annually. Which of the following is most likely to be the best model for determining the intrinsic value of an Omega share? A- Gordon growth model. B- Free cash flow to equity model. C- Multistage dividend discount model.

An excess spread account incorporated into a securitization is designed to limit: A- credit risk. B- extension risk. C- contraction risk.

An executive from Switzerland checked into a hotel room in Spain and was told by the hotel manager that 1 EUR will buy 1.2983 CHF. From the executive's perspective, an indirect exchange rate quote would be: A- 0.7702 EUR per CHF. B- 0.7702 CHF per EUR. C- 1.2983 EUR per CHF.

An increase in the time between when an order to trade a security is placed and when the order is executed most likely indicates that market efficiency has: A- decreased. B- remained the same. C- increased.

An industry with high barriers to entry and weak pricing power most likely has: A- high barriers to exit. B- stable market shares. C- significant numbers of issued patents.

An interest rate swap is a derivative contract in which: A- two parties agree to exchange a series of cash flows. B- the credit seller provides protection to the credit buyer. C- the buyer has the right to purchase the underlying from the seller.

An investment bank that underwrites a bond issue most likely: A- buys and resells the newly issued bonds to investors or dealers. B- acts as a broker and receives a commission for selling the bonds to investors. C- incurs less risk associated with selling the bonds than in a best efforts offering.

An investment has an outlay of 100 and after-tax cash flows of 40 annually for four years. A project enhancement increases the outlay by 15 and the annual after-tax cash flows by 5. As a result, the vertical intercept of the NPV profile of the enhanced project shifts: A- up and the horizontal intercept shifts left. B- up and the horizontal intercept shifts right. C- down and the horizontal intercept shifts left.

An investment opportunity schedule is most accurately described as illustrating all the projects: A- available to a company. B- that will add value to a company. C- within a company's optimal capital budget.

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.

An investor analyzes the stock market of a specific country and discovers that the stock prices are very slow to reflect new information. The investor can best profit from this situation using a(n): A- active fund. B- passive fund. C- low cost approach.

An investor buys a 15-year, £800,000, zero-coupon bond with an annual YTM of 7.3%. If she sells the bond after three years for £346,333 she will have: A- a capital gain. B- a capital loss. C- neither a capital gain nor a capital loss.

An investor concerned whether a company can meet its near-term obligations is most likely to calculate the: A- current ratio. B- return on total capital. C- financial leverage ratio.

An investor has the most control over her portfolio's: A- risk. B- relative returns. C- risk-adjusted returns.

An investor purchases a bond at a price above par value. Two years later, the investor sells the bond. The resulting capital gain or loss is measured by comparing the price at which the bond is sold to the: A- carrying value. B- original purchase price. C- original purchase price value plus the amortized amount of the premium.

An investor seeks a current income stream as a component of total return, and desires an investment that historically has low correlation with other asset classes. The investment most likely to achieve the investor's goals is: A- timberland. B- collectibles. C- commodities.

An investor whose portfolio lies to the right of the market portfolio on the capital market line (CML) has most likely: A- borrowed funds at the risk-free rate and invested all available funds in the market portfolio. B- invested all available funds in the risk-free asset. C- loaned some funds at the risk-free rate and invested the remaining funds in the market portfolio.

An investor writes a put option with an exercise price of $40 when the stock price is $42. The option premium is $1. At expiration the stock price is $37. The investor will realize: A- a loss of $2. B- a loss of $3. C- a profit of $1.

An optimal risky portfolio has an expected return of 15% and standard deviation of 20%. The risk-free rate is currently 5%. A risk-seeking investor who is considering investing along the capital allocation line (CAL) would most likely: A- borrow 25% of her wealth at the risk-free rate and invest 125% in the optimal risky portfolio. B- invest 100% of her wealth in the optimal risky portfolio. C- lend 100% of her wealth at the risk-free rate.

An overreaction in the financial markets causes a security's price to experience a significant loss during a short period. If this overreaction is caused by investors that sell because other investors are selling, the behavior is best described as: A- herding. B- overconfidence. C- loss aversion.

Arbitrage opportunities exist when: A- two identical assets or derivatives sell for different prices. B- combinations of the underlying asset and a derivative earn the risk-free rate. C- arbitrageurs simultaneously buy takeover targets and sell takeover acquirers.

As one moves to the right along an investor's efficient frontier, a set increase in risk is most likely to lead to: A- sequentially smaller increases in expected return. B- consistent increases in expected return. C- sequentially larger increases in expected return.

As the number of stocks in a portfolio increases, the portfolio's systematic risk: A- can increase or decrease. B- decreases at a decreasing rate. C- decreases at an increasing rate.

As the price level declines along the aggregate demand curve, the interest rate is most likely to: A- decline. B- increase. C- remain unchanged.

Assuming no change in the credit risk of a bond, the presence of an embedded put option: A- reduces the effective duration of the bond. B- increases the effective duration of the bond. C- does not change the effective duration of the bond.

At expiration, the exercise value of a put option is: A- positive if the underlying asset price is less than the exercise price. B- zero only if the underlying asset price is equal to the exercise price. C- negative if the underlying asset price is greater than the exercise price.

At the beginning of Year 1, a fund has $10 million under management; it earns a return of 14% for the year. The fund attracts another $100 million at the start of Year 2 and earns a return of 8% for that year. The money-weighted rate of return is most likely: A- less than the time-weighted rate of return. B- the same as the time-weighted rate of return. C- greater than the time-weighted rate of return.

At the time of issue, for a corporate bond that sells at par, the liability on the issuer's balance sheet would be: A- equal to face value. B- greater than face value. C- less than face value.

Based on put-call parity, a trader who combines a long asset, a long put, and a short call will create a synthetic: A- long bond. B- fiduciary call. C- protective put.

Based on put-call parity, which of the following combinations results in a synthetic long asset position? A- A long call, a short put, and a long bond B- A short call, a long put, and a short bond C- A long call, a short asset, and a long bond

Based on the decennial pattern of cycles, how would the return of the Dow Jones Industrial Average (DJIA) in the year 2015 compare with the return in 2020? A- The return would be better. B- The return would be worse. C- The answer cannot be determined because the theory does not apply to both of those years.

Benefits of effective corporate governance and stakeholder management most likely include: A- reduced risk of default. B- more efficient related-party transactions. C- greater control exercised by the most-interested stakeholders.

Both event-driven and macro hedge fund strategies use: A- long-short positions. B- a top-down approach. C- long-term market cycles.

Information about management and director compensation are least likely to be found in the: A- auditor's report. B- proxy statement. C- notes to the financial statements.

Inherent risks in an investment are most appropriately evaluated in which step of the financial statement analysis framework? A- Develop and communicate conclusions/recommendations B- Articulate the purpose and context of analysis C- Process data

Innovative Inventions, Inc. needs to raise €10 million. If the company chooses to issue zero-coupon bonds, its debt-to-equity ratio will most likely: A- rise as the maturity date approaches. B- decline as the maturity date approaches. C- remain constant throughout the life of the bond.

Investment property is most likely to: A- earn rent. B- be held for resale. C- be used in the production of goods and services.

Investors should use a portfolio approach to: A- reduce risk. B- monitor risk. C- eliminate risk.

Isaac Segovia, CFA, is using the net present value (NPV) and internal rate of return (IRR) methods to analyze a project for his firm. After its initial cash outflow, the project will generate several years of cash inflows, but will require a net cash outflow in the final year. The problem Segovia is most likely to encounter when using the NPV or IRR methods for this analysis is: A- multiple IRRs. B- negative NPV. C- conflicting NPV and IRR project rankings.

Jayco, Inc., sells blue ink for $4 a bottle. The ink's variable cost per bottle is $2. Ink has fixed operating costs of $4,000 and fixed financing costs of $6,000. What is Jayco's operating breakeven quantity of sales, in units? A- 2,000. B- 3,000. C- 5,000.

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

Labor productivity is most likely to increase as a result of: A- an increase in physical capital. B- a decrease in net immigration. C- an increase in the labor force participation rate.

Lisa Blackstone, a new CFA charterholder, had to explain to the marketing department of her firm that making any claim of superior analytical skills due to her designation would most likely be a violation of: A- Standard VII-Responsibilities as a CFA Institute Member or CFA Candidate. B- Standard V-Investment Analysis, Recommendations, and Actions. C- Standard IV-Duties to Employers.

Lisa Smith owns a manufacturing company in the United States. Her company has sold goods to a customer in Brazil and will be paid in Brazilian real (BRL) in three months. Smith is concerned about the possibility of the BRL depreciating more than expected against the US dollar (USD). Therefore, she is planning to sell three-month futures contracts on the BRL. The seller of such contracts generally gains when the BRL depreciates against the USD. If Smith were to sell these future contracts, she would most appropriately be described as a(n): A- hedger. B- investor. C- information-motivated trader.

Monetarists favor a limited role for the government because they argue: A- government policy responses may lag. B- firms take time to adjust to systemic shocks to the economy. C- resource use is efficient with marginal revenue and cost equal.

Monte Carlo simulation is best described as: A- providing a distribution of possible solutions to complex functions. B- a restrictive form of scenario analysis. C- an approach to back-test data.

Non-operating items reported on the income statement: A- include interest expense and interest revenue for non-financial service firms. B- are shown as either financing or investing items on the cash flow statement. C- are required to be reported as separate entries.

Normal profit is best described as: A- zero economic profit. B- total revenue minus all explicit costs. C- the sum of accounting profit plus economic profit.

The process of moving credit ratings of different issues up or down from the issuer rating in response to different payment priorities is best described as: A- notching. B- structural subordination. C- cross-default provisions.

The proposition that the real interest rate is relatively stable is most closely associated with: A- the Fisher effect. B- money neutrality. C- the quantity theory of money.

The provision that provides bondholders the right to sell the bond back to the issuer at a predetermined price prior to the bond's maturity date is referred to as: A- a put provision. B- a make-whole call provision. C- an original issue discount provision.

The rating agency process whereby the credit ratings on issues are moved up or down from the issuer rating best describes: A- notching. B- pari passu ranking. C- cross-default provisions.

The real rate duration for an option-free, fixed-rate bond is equivalent to the bond's: A- inflation duration and liquidity duration. B- credit duration and not its inflation duration. C- inflation duration and not its liquidity duration.

The repo margin is: A- negotiated between counterparties. B- established independently of market-related conditions. C- structured on an agreement assuming equal credit risks to all counterparties.

The repo margin on a repurchase agreement is most likely to be lower when: A- the underlying collateral is in short supply. B- the maturity of the repurchase agreement is long. C- the credit risk associated with the underlying collateral is high.

The returns of hedge fund indexes are most likely: A- biased upward. B- biased downward. C- similar across different index providers.

The risk that a bond's creditworthiness declines is best described by: A- credit migration risk. B- market liquidity risk. C- spread widening risk.

The sale of mineral rights would be captured in which of the following balance of payments components? A- Capital account. B- Current account. C- Financial account.

The sensitivity of a bond's price to a change in the benchmark yield curve is best described as: A- effective duration. B- modified duration. C- the price value of a basis point.

The short-term breakeven point of production for a firm operating under perfect competition will most likely occur when: A- price is equal to average total cost. B- marginal revenue is equal to marginal cost. C- marginal revenue is equal to average variable costs.

The slope of the security characteristic line is an asset's: A- beta. B- excess return. C- risk premium.

The statement that is most consistent with real business cycle (RBC) models is that: A- persons are unemployed because their asking wages are too high. B- governments should intervene when the economy is in contraction. C- monetary variables have a major impact on GDP growth.

The strategic asset allocation and portfolio rebalancing policy are most likely addressed in which section of an investment policy statement? A- Appendices B- Investment objectives C- Procedures

The total probability rule is used when an analyst is interested in: A- all potential outcomes. B- a set of events. C- a single outcome.

The tranches in a collateralized mortgage obligation (CMO) that are most likely to provide protection for investors against both extension and contraction risk are: A- planned amortization class (PAC) tranches. B- support tranches. C- sequential-pay tranches.

The type of investment most often used to gain exposure to commodity prices is a portfolio of: A- derivative securities. B- physical commodities. C- commodity producing companies.

The type of resolution most likely to require a supermajority of shareholder votes for passage is a resolution to: A- acquire a company. B- choose a board member. C- approve the choice of an auditor.

The underlying asset of a derivative is most likely to have a convenience yield when the asset: A- is difficult to sell short. B- pays interest or dividends. C- must be stored and insured.

The unemployment rate is defined as the number of unemployed as a percentage of: A- the labor force. B- the number of employed. C- the working-age population.

What does the P/E ratio measure? A- The "multiple" that the stock market places on a company's EPS. B- The relationship between dividends and market prices. C- The earnings for one common share of stock.

Which of the following describes a typical feature of a non-agency residential mortgage-backed security (RMBS)? A- Senior/subordinated structure B- A pool of conforming mortgages as collateral C- A guarantee by a government-sponsored enterprise

Which of the following derivatives allows an investor to pay the return on a stock index and receive a fixed rate? A- Equity swap B- Stock warrant C- Index futures contract

Which of the following derivatives positions replicates investing at the risk-free rate? A- Holding an asset and a short position in a forward contract on the asset. B- Holding an asset and a long position in a forward contract on the asset. C- Selling an asset short and holding a short position in a forward contract on the asset.

Which of the following derivatives provide payoffs that are non-linearly related to the payoffs of the underlying? A- Options B- Forwards C- Interest-rate swaps

Which of the following describes privately placed bonds? A- They are non-underwritten and unregistered. B- They usually have active secondary markets. C- They are less customized than publicly offered bonds.

Which of the following disclosures regarding new accounting standards provides the most meaningful information to an analyst? A- The impact of adoption is discussed. B- The standard will have no material impact. C- Management is still evaluating the impact.

Which of the following duration measures is the most appropriate measure of interest rate risk for a complex bond? A- Effective duration B- Modified duration C- Macaulay duration

Which of the following elements of financial statements is most closely related to measurement of financial position? A- Equity. B- Income. C- Expenses.

Which of the following equations is a consequence of the Fisher effect? A- Nominal interest rate = Real interest rate + Expected rate of inflation. B- Real interest rate = Nominal interest rate + Expected rate of inflation. C- Nominal interest rate = Real interest rate + Market risk premium.

Which of the following events can be represented as a Bernoulli trial? A- The flip of a coin B- The closing price of a stock C- The picking of a random integer between 1 and 10

With respect to an investor's utility function, which of the following values for the measure for risk aversion has the least amount of risk aversion? A- −4. B- 0. C- 4.

With respect to capital market theory, the optimal risky portfolio: A- is the market portfolio. B- has the highest expected return. C- has the lowest expected variance.

With respect to capital market theory, which of the following asset characteristics is least likely to impact the variance of an investor's equally weighted portfolio? A- Return on the asset. B- Standard deviation of the asset. C- Covariances of the asset with the other assets in the portfolio.

With respect to capital market theory, which of the following statements best describes the effect of the homogeneity assumption? Because all investors have the same economic expectations of future cash flows for all assets, investors will invest in: A- the same optimal risky portfolio. B- the Standard and Poor's 500 Index. C- assets with the same amount of risk.

With respect to competitive strategy, a company with a successful cost leadership strategy is most likely characterized by: A- a low cost of capital. B- reduced market share. C- the ability to offer products at higher prices than competitors.

With respect to efficient market theory, when a market allows short selling, the efficiency of the market is most likely to: A- increase. B- decrease. C- remain the same.

With respect to rational and irrational investment decisions, the efficient market hypothesis requires: A- only that the market is rational. B- that all investors make rational decisions. C- that some investors make irrational decisions.

With respect to return-generating models, which of the following statements is most accurate? Return-generating models are used to directly estimate the: A- expected return of a security. B- weights of securities in a portfolio. C- parameters of the capital market line.

With respect to risk-averse investors, a risk-free asset will generate a numerical utility that is: A- the same for all individuals. B- positive for risk-averse investors. C- equal to zero for risk seeking investors.

With respect to the capital asset pricing model, the primary determinant of expected return of an individual asset is the: A- asset's beta. B- market risk premium. C- asset's standard deviation.

With respect to the capital asset pricing model, which of the following values of beta for an asset is most likely to have an expected return for the asset that is less than the risk-free rate? A- −0.5 B- 0.0 C- 0.5

With respect to the capital market line, a portfolio on the CML with returns less than the returns on the market portfolio represents a(n): A- lending portfolio. B- borrowing portfolio. C- unachievable portfolio.

With respect to the efficient market hypothesis, if security prices reflect only past prices and trading volume information, then the market is: A- weak-form efficient. B- strong-form efficient. C- semi-strong-form efficient.

With respect to the mean-variance portfolio theory, the capital allocation line, CAL, is the combination of the risk-free asset and a portfolio of all: A- risky assets. B- equity securities. C- feasible investments.

With respect to the relationship between output and costs in the short run, a decline in the marginal cost per unit most likely occurs at what level of production? A- Low output B- Profit-maximizing output C- High output

Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the cost of replacing the inventory, during periods of rising prices, the cost of sales reported by: A- Zimt is too low. B- Nutmeg is too low. C- Nutmeg is too high.

Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in 2018. Compared to the results the company would have reported if the write-down had never occurred, Zimt's reported 2018: A- profit was overstated. C- cash flow from operations was overstated. B- year-end inventory balance was overstated.

n general, which of the following institutions will most likely have a high need for liquidity and a short investment time horizon? A- Banks B- Defined-benefit pension plans C- Endowments

Aquarius, Inc. is the dominant company and the price leader in its market. One of the other companies in the market attempts to gain market share by undercutting the price set by Aquarius. The market share of Aquarius will most likely: A- increase. B- decrease. C- stay the same.

A As prices decrease, smaller companies will leave the market rather than sell below cost. The market share of Aquarius, the price leader, will increase

Standard deviation is least likely an appropriate measure of risk for: A- hedge funds. B- publicly traded REITs. C- exchange-traded funds.

A Because they may hold illiquid assets

Which of the following statements is most accurate? An interbank offered rate: A- is a single reference rate. B- applies to borrowing periods of up to 10 years. C- is used as a reference rate for interest rate swaps.

If over a long period of time a country's average level of educational accomplishment increases, this development would most likely lead to the country's amount of income spent on consumer discretionary goods to: A- decrease. B- increase. C- not change.

If prices reflect all public and private information, the market is best described as: A- weak-form efficient. B- strong-form efficient. C- semi-strong-form efficient.

If regulations do not specify how long to retain the documents that support an analyst's conclusions, the Code and Standards recommend a period of at least: A- 5 years. B- 7 years. C- 10 years.

Asset-based valuation models are best suited to companies where the capital structure does not have a high proportion of: A- debt. B- intangible assets. C- current assets and liabilities.

At expiration, American call options are worth: A- less than European call options. B- the same as European call options. C- more than European call options.

At the time of issue of 4.50% coupon bonds, the effective interest rate was 5.00%. The bonds were most likely issued at: A- par. B- a discount. C- a premium.

Based on good corporate governance practices, independent board members most likely: A- are pre-approved by management before being nominated. B- have a "lead" director when the board chair is not independent. C- hold large equity positions but have never worked at the company.

If interest rates increase, an investor who owns a mortgage pass-through security is most likely affected by: A- credit risk. B- extension risk. C- contraction risk.

If markets are efficient, the difference between the intrinsic value and market value of a company's security is: A- negative. B- zero. C- positive.

If markets are semi-strong efficient, standard fundamental analysis will yield abnormal trading profits that are: A- negative. B- equal to zero. C- positive.

If markets are semi-strong-form efficient, then passive portfolio management strategies are most likely to: A- earn abnormal returns. B- outperform active trading strategies. C- underperform active trading strategies.

If no cash is initially exchanged, a swap is comparable to a series of forward contracts when: A- the swap payments are variable. B- the combined value of all the forward contracts is zero. C- all the forward contracts have the same agreed-on price.

If the domestic currency is trading at a forward premium, then relative to the interest rate of the domestic country, the interest rate in the foreign country is most likely: A- lower. B- higher. C- the same.

If the implied volatility for options on a broad-based equity market index goes up, then it is most likely that: A- the broad-based equity market index has gone up in value. B- the general level of market uncertainty has gone up. C- market interest rates have gone up.

Which of the following statements is most accurate? For a country to gain from trade, it must have: A- economies of scale or lower labor costs. B- an absolute advantage. C- a comparative advantage.

Like many technology companies, TechnoTools operates in an environment of declining prices. Its reported profits will tend to be highest if it accounts for inventory using the: A- FIFO method. B- LIFO method. C- weighted average cost method.

Liquidity risk is most associated with: A- the probability of default. B- a widening bid-ask spread. C- a poorly functioning market.

Long-term sustainable growth of an economy is least likely to result from growth in: A- the supply of labor. B- capital per unit of labor. C- out put per unit of labor.

Low quality earnings most likely reflect: A- low-quality financial reporting. B- company activities which are unsustainable. C- information that does not faithfully represent company activities.

Which of the following items is an example of deferred income? A- Normal operating expenses that have been paid in advance B- A payment received for contracted goods and services prior to their delivery C- An expense recognized on a company's income statement but not paid for as of the balance sheet date

The slope of the security market line (SML) represents the portion of an asset's expected return attributable to: A- diversifiable risk. B- market risk. C- total risk.

The spot rate on the New Zealand dollar (NZD) is NZD/USD 1.4286, and the 180-day forward rate is NZD/USD 1.3889. This difference means: A- interest rates are lower in the United States than in New Zealand. B- interest rates are higher in the United States than in New Zealand. C- it takes more NZD to buy one USD in the forward market than in the spot market.

The theory that deals with conflicts of interest between a company's owners and its creditors is most appropriately called: A- structure theory. B- stakeholder theory. C- shareholder theory.

The three major classifications of activities in a cash flow statement are: A- inflows, outflows, and net flows. B- operating, investing, and financing. C- revenues, expenses, and net income.

A float-adjusted market-capitalization-weighted index weights each of its constituent securities by its price and: A- its trading volume. B- the number of its shares outstanding. C- the number of its shares available to the investing public.

Which of the following information about a company would most likely depend on an industry analysis? The company's: A- dividend policy. B- competitive environment. C- trends in corporate expenses.

Which of the following institutional investors is most likely to manage investments in mutual funds? A- Insurance companies. B- Investment companies. C- University endowments.

Which of the following institutional investors will most likely have the longest time horizon? A- Defined benefit plan. B- University endowment. C- Life insurance company.

Which of the following international trade organizations regulates cross-border exchange among nations on a global scale? A- World Bank Group (World Bank). B- World Trade Organization (WTO). C- International Monetary Fund (IMF).

Which of the following investment products is most likely to trade at their net asset value per share? A- Exchange traded funds. B- Open-end mutual funds. C- Closed-end mutual funds.

Which of the following investments is least subject to prepayment risk? A- Auto loan receivable-backed securities B- Commercial mortgage-backed securities (CMBSs) C- Non-agency residential mortgage-backed securities (RMBSs)

Which of the following is a type of external credit enhancement? A- Covenants B- A surety bond C- Overcollaterization

Which of the following is an appropriate method of computing free cash flow to the firm? A- Add operating cash flows to capital expenditures and deduct after-tax interest payments. B- Add operating cash flows to after-tax interest payments and deduct capital expenditures. C- Deduct both after-tax interest payments and capital expenditures from operating cash flows.

Which of the following is an off-balance-sheet financing technique? The use of: A- capital leases. B- operating leases. C- the last in, first out inventory method

Which of the following is best characterized as a relative risk objective? A- Value at risk for the fund will not exceed US$3 million. B- The fund will not underperform the DAX by more than 250 basis points. C- The fund will not lose more than €2.5 million in the coming 12-month period.

Which of the following is least likely a component of the current account? A- Unilateral transfers. B- Payments for fixed assets. C- Payments for goods and services.

Which of the following is least likely a component of yield spread? A- Taxation B- Expected inflation rate C- Credit risk

Which of the following is least likely a feature of a credit card receivable ABS? A- An early amortization provision B- Amortizing collateral C- A lockout period

Which of the following is least likely a rationale for using price multiples? A- Price multiples are easily calculated. B- The fundamental P/E ratio is insensitive to its inputs. C- The use of forward values in the divisor provides an incorporation of the future.

Which of the following is least likely to explain the January effect anomaly? A- Tax-loss selling. B- Release of new information in January. C- Window dressing of portfolio holdings.

Which of the following is least likely true for a separately managed account (SMA) compared with a mutual fund? A- Assets are directly owned by the individual. B- The minimum investment required to open a SMA is lower than that of a mutual fund. C- Transactions can be tailored to the specific tax needs of the investor.

Which of the following is lowest in quality on the spectrum of GAAP conforming financial reports? A- Aggressive accounting choices B- Earnings management C- Conservative accounting choices

Which of the following is most likely a benefit of the direct method for reporting cash flow from operating activities? Compared with the indirect method, the direct method: A- mirrors the forecasting approach normally used by analysts. B- provides details on the specific sources of operating receipts and payments. C- provides insight on differences between net income and operating cash flows.

Which of the following is most likely a lessee's disclosure about operating leases? A- Lease liabilities. B- Future obligations by maturity. C- Net carrying amounts of leased assets.

Which of the following is most likely classified as a current liability? A- Payment received for a product due to be delivered at least one year after the balance sheet date B- Payments for merchandise due at least one year after the balance sheet date but still within a normal operating cycle C- Payment on debt due in six months for which the company has the unconditional right to defer settlement for at least one year after the balance sheet date

Which of the following is most likely considered a weakness of present value models? A- Present value models cannot be used for companies that do not pay dividends. B- Small changes in model assumptions and inputs can result in large changes in the computed intrinsic value of the security. C- The value of the security depends on the investor's holding period; thus, comparing valuations of different companies for different investors is difficult.

Which of the following is most likely included in a firm's ending inventory? A- Storage costs of finished goods. B- Variable production overhead. C- Selling and administrative costs.

Which of the following is most likely to cause the long-run aggregate supply curve to shift to the left? A- Higher nominal wages. B- A decline in productivity. C- An increase in corporate taxes.

Which of the following is not a limitation of the cyclical/non-cyclical descriptive approach to classifying companies? A- A cyclical company may have a growth component in it. B- Business-cycle sensitivity is a discrete phenomenon rather than a continuous spectrum. C- A global company can experience economic expansion in one part of the world while experiencing recession in another part.

Which of the following is not a real estate index category? A- Appraisal index. B- Initial sales index. C- Repeat sales index.

Which of the following is not a required financial statement according to IAS No. 1? A- Statement of financial position. B- Statement of changes in income. C- Statement of comprehensive income.

Which of the following is the most likely reason for an analyst to choose the direct method rather than the indirect method for analyzing a firm's operating cash flows? A- To understand the relationship between net income and operating cash flows B- To identify operating cash flows by source and by use C- To avoid making adjustments for non-cash items

Which of the following issues discussed at a shareholders' general meeting would most likely require only a simple majority vote for approval? A- Voting on a merger B- Election of directors C- Amendments to bylaws

Accrued expenses (accrued liabilities) are: A- expenses that have been paid. B- created when another liability is reduced. C- expenses that have been reported on the income statement but not yet paid.

An increase in the nominal money supply would shift the: A- IS curve and the LM curve. B- IS curve and the aggregate demand curve. C- LM curve and the aggregate demand curve.

An increase in the policy rate will most likely lead to an increase in: A- business investment in fixed assets. B- consumer spending on durable goods. C- the foreign exchange value of the domestic currency.

An industry that most likely has both high barriers to entry and high barriers to exit is the: A- restaurant industry. B- advertising industry. C- automobile industry.

An investor expects to purchase shares of common stock today and sell them after two years. The investor has estimated dividends for the next two years, D1 and D2, and the selling price of the stock two years from now, P2. According to the dividend discount model, the intrinsic value of the stock today is the present value of: A- next year's dividend, D1. B- future expected dividends, D1 and D2. C- future expected dividends and price—D1, D2 and P2.

An investor in a country with an original issue discount tax provision purchases a 20-year zero-coupon bond at a deep discount to par value. The investor plans to hold the bond until the maturity date. The investor will most likely report: A- a capital gain at maturity. B- a tax deduction in the year the bond is purchased. C- taxable income from the bond every year until maturity.

An investor may prefer a single hedge fund to a fund of funds if he seeks: A- due diligence expertise. B- better redemption terms. C- a less complex fee structure.

An investor primarily invests in stocks of publicly traded companies. The investor wants to increase the diversification of his portfolio. A friend has recommended investing in real estate properties. The purchase of real estate would best be characterized as a transaction in the: A- derivative investment market. B- traditional investment market. C- alternative investment market.

Categories of alternative investments would least likely be described by which of the following? A- Fine wine and other tangibles B- Schools and other long-lived real assets C- Cash and other liquid investments

Central banks would typically be most concerned with costs of: A- low levels of inflation that are anticipated. B- moderate levels of inflation that are anticipated. C- moderate levels of inflation that are not anticipated.

For the current period, inappropriate capitalization is most likely to: A- overstate revenues. B- understate liabilities. C- understate expenses.

For which two of a company's stakeholders does information asymmetry most likely make monitoring more difficult? A- Suppliers and employees. B- Employees and managers. C- Managers and shareholders.

Forward commitments subject to default are: A- forwards and futures. B- futures and interest rate swaps. C- interest rate swaps and forwards.

Fundamental analysts assume that markets are: A- weak-form inefficient. B- semi-strong-form efficient. C- semi-strong-form inefficient.

Global depository receipts are most often denominated in: A- the currency of. the country where they trade and issued. outside the UnitedStates. B- U.S.dollars and issued in the UnitedStates. C- U.S.dollars and issued outside the UnitedStates.

Maersk Corp. issued bonds that are secured by its shipping containers. These bonds are most likely a type of: A- mortgage-backed security. B- collateral trust bond. C- equipment trust certificate.

Market float of a stock is best described as its: A- total outstanding shares. B- shares that are available to domestic investors. C- outstanding shares, excluding those held by controlling shareholders.

Monetary policy is least likely to include: A- setting an inflation rate target. B- changing an official interest rate. C- enacting a transfer payment program.

Monetary policy is likely to be least responsive to domestic economic conditions if policymakers employ: A- inflation targeting. B- interest rate targeting. C- exchange rate targeting.

Most of the widely used global security indexes are: A- price weighted. B- equal weighted. C- market capitalization weighted.

Mutual funds that hold high cash positions are most likely viewed by technical analysts as being: A- neutral. B- bearish. C- bullish.

Neutrality of information in the financial statements most closely contributes to which qualitative characteristic? A- Relevance. B- Understandability. C- Faithful representation.

Notes to financial statements most likely include: A- a discussion of significant trends, events, and uncertainties that affect the operating results. B- an auditor's opinion as to the fair presentation of the financial statements. C- supplementary information about accounting policies, methods, and estimates.

Which of the following statements is most accurate? If the covariance of returns between two assets is 0.0023, then: A- the assets' risk is near zero. B- the asset returns are unrelated. C- the asset returns have a positive relationship.

The CDO tranche with a credit rating status between senior and subordinated bond classes is called the: A- equity tranche. B- residual tranche. C- mezzanine tranche.

The Fisher effect states that the nominal interest rate is equal to the real rate plus: A- actual inflation. B- average inflation. C- expected inflation.

The IS curve illustrates which of the following relationships? A- Direct relationship between aggregate income and the price level. B- Inverse relationship between aggregate income and the price level. C- Inverse relationship between aggregate income and the real interest rate.

Which type of call bond option offers the greatest flexibility as to when the issuer can exercise the option? A- A Bermuda call B- A European call C- An American call

Which type of security is most likely to have the same rating as the issuer? A- Preferred stock B- Senior secured bond C- Senior unsecured bond

William Mason, CFA, is a project manager for the semiconductor division of Mammoth Industries, a conglomerate. The semiconductor division's projected cash flows are less certain than Mammoth's overall cash flows. When determining the net present values of projects within the semiconductor division, Mason should use: A.-Mammoth Industries' marginal cost. of capital. B- a lower marginal cost of capital than Mammoth Industries. C- a higher marginal cost of capital than Mammoth Industries.

With regard to net present value (NPV) profiles, the point at which a profile crosses the horizontal axis is best described as: A- the point at which two projects have the same NPV. B- the sum of the undiscounted cash flows from a project. C- a project's internal rate of return when the project's NPV is equal to zero.

With regard to the internal rate of return (IRR), which of the following statements is most accurate? A- The IRR is the discount rate that maximizes a project's net present value. B- A proper decision. rule is to accept the project if IRR is less than the required rate of return. C- IRR is the discount rate at which the present value of expected future after-tax cash flows is equal to the investment outlay.

With respect to European and American options, cash flows from the underlying asset may make: A- a European put more valuable than an otherwise identical American put. B- an American put more valuable than an otherwise identical European put. C- an American call more valuable than an otherwise identical European call.

With respect to an equally-weighted portfolio made up of a large number of assets, which of the following contributes the most to the volatility of the portfolio? A- Average variance of the individual assets. B- Standard deviation of the individual assets. C- Average covariance between all pairs of assets.

Trade receivables are: A- typically reported at gross value. B- owed by customers for products and services to be delivered. C- based on the company's estimate of amounts that ultimately will be collectible.

Which of the following is a key determinant of operating leverage? A- Level and cost of debt B- The competitive nature of the business. C- The trade-off between fixed and variable costs.

A hypothesis test fails to reject a false null hypothesis. This result is best described as a: A- Type II error. B- Type I error. C- test with little power.

An increase in which of the following items will most likely result in a wider confidence interval for the population mean? A- Reliability factor B- Sample size C- Degrees of freedom

As the t-distribution's degrees of freedom decrease, the t-distribution most likely: A- exhibits tails that become fatter. B- approaches a standard normal distribution. C- becomes asymmetrically distributed around its mean value.

For a two-sided confidence interval, an increase in the degree of confidence will result in: A- a wider confidence interval. B- a narrower confidence interval. C- no change in the width of the confidence interval.

In contrast to normal distributions, lognormal distributions: A- are skewed to the left. B- have outcomes that cannot be negative. C- are more suitable for describing asset returns than asset prices.

When working backward from the nodes on a binomial tree diagram, the analyst is attempting to calculate: A- the number of potential outcomes. B- the probability of a given scenario. C- an expected value as of today.

Compared to alternative investments, traditional investments tend to: A- be less liquid. B- be less regulated. C- require lower fees.

The price of a swap typically: A- is zero at initiation. B- fluctuates over the life of the contract. C- is obtained through a process of replication.

Which probability estimate most likely varies greatly between people? A- An a priori probability B- An empirical probability C- A subjective probability

Which type of bond most likely earns interest on an implied basis? A- Floater B- Conventional bond C- Pure discount bond

A characteristic of forward commitments is that they: A- provide linear payoffs. B- do not depend on the outcome or payoff of an underlying asset. C- provide one party the right to engage in future transactions on terms agreed on in advance.

A devaluation of a country's currency to improve its trade deficit would most likely benefit a producer of: A- luxury goods for export. B- export goods that have no close substitutes. C- an export good that represents a relatively small proportion of consumer.

Financial reports of the lowest level of quality reflect: A- fictitious events. B- biased accounting choices. C- accounting that is non-compliant with GAAP.

A firm recently recognized a $15,000 loss on the sale of machinery used in its manufacturing operation. The original cost of the machinery was $100,000 and the accumulated depreciation at the date of sale was $60,000. What amount did the firm receive from the sale? A- $25,000. B- $45,000. C- $85,000.

State the approximate probability that a normal random variable will fall within the following intervals: Q. Mean plus or minus one standard deviations.

68%

"Notching" is best described as a difference between: A- an issuer credit rating and an issue credit rating. B- a company credit rating and an industry average credit rating. C- an investment grade credit rating and a noninvestment grade credit rating.

A futures contract is best described as a contract that is: A- standardized. B- subject to credit risk. C- marked to market throughout the trading day.

A payment received for a subscription service at the beginning of the period will most likely be recorded as: A- trade payable. B- deferred income. C- notes payable.

A portfolio engages in an investment strategy that relies on a particular element of the tax code to produce superior after-tax returns for high-net-worth individuals. Because of this strategy, the portfolio most likely faces a high level of: A- compliance risk. B- model risk. C- legal risk.

A price index of goods and services that excludes food and energy is most likely used to calculate: A- core inflation. B- the GDP deflator. C- headline inflation.

All else being equal, the difference between the nominal spread and the Z-spread for a non-Treasury security will most likely be larger when the: A- yield curve is steep. B- security has a bullet maturity rather than an amortizing structure. C- yield curve is flat.

All else equal, in the fiscal year when long-lived equipment is purchased: A- depreciation expense increases. B- cash from operations decreases. C- net income is reduced by the amount of the purchase.

All of the following are names of Elliott cycles except: A- presidential. B- supercycle. C- grand supercycle.

An analyst who is projecting a company's net income and cash flows is least likely to assume a constant relationship between the company's sales and its: A- interest expenses. B- cost of goods sold. C- noncash working capital.

An investor buys a 10-year bond with a 6.5% annual coupon and a YTM of 6%. Before the first coupon payment is made, the YTM for the bond decreases to 5.5%. Assuming coupon payments are reinvested at the YTM, the investor's return when the bond is held to maturity is: A- less than 6.0%. B- equal to 6.0%. C- greater than 6.0%.

Financial statement disclosures relating to inventory are least likely to include which of the following? Information about the: A- types of inventory. B- amount of inventories pledged as security for liabilities. C- inventory valuation method used.

Fintech is most accurately described as: A- the application of technology to the financial services industry. B- the replacement of government-issued money with electronic currencies. C- the clearing and settling securities trades through distributed ledger technology.

Firm A and Firm B have the same quick ratio, but Firm A has a greater current ratio than Firm B. Compared to Firm B, it is most likely that Firm A has: A- greater inventory. B- greater payables. C- a higher receivables turnover ratio.

Funds from operations (FFO) of Pay Handle Ltd increased in 2011. In 2011 the total debt of the company remained unchanged, while additional common shares were issued. Pay Handle Ltd's ability to service its debt in 2011, as compared to 2010, most likely: A- improved. B- worsened. C- remained the same.

Gross domestic product does not include the value of: A- transfer payments. B- government services. C- owner-occupied housing.

In the case of a normal good with a decrease in own price, which of the following statements is most likely true? A- Both the substitution and income effects lead to an increase in the quantity purchased. B- The substitution effect leads to an increase in the quantity purchased, while the income effect has no impact. C- The substitution effect leads to an increase in the quantity purchased, while the income effect leads to a decrease.

In the event of default, the recovery rate of which of the following bonds would most likely be the highest? A- First mortgage debt B- Senior unsecured debt C- Junior subordinate debt

Nutmeg, Inc. uses the LIFO method to account for inventory. During years in which inventory unit costs are generally rising and in which the company purchases more inventory than it sells to customers, its reported gross profit margin will most likely be: A- lower than it would be if the company used the FIFO method. B- higher than it would be if the company used the FIFO method. C- about the same as it would be if the company used the FIFO method.

Obligations of a company arising from past events are best described as: A- liabilities. B- prepaid expenses. C- shareholders' equity.

Risks in infrastructure investing are most likely greatest when the project involves: A- construction of infrastructure assets. B- investment in existing infrastructure assets. C- investing in assets that will be leased back to a government.

Secondary market bond transactions most likely take place: A- in dealer markets. B- in brokered markets. C- on organized exchanges.

Sell-side participants in the foreign exchange market are most likely to include: A- banks. B- hedge funds. C- insurance companies.

The dominant capital allocation line is the combination of the risk-free asset and the: A- optimal risky portfolio. B- levered portfolio of risky assets. C- global minimum-variance portfolio.

The price of a fixed-for-floating interest rate swap: A- is specified in the swap contract. B- is paid at initiation by the floating-rate receiver. C- may increase or decrease during the life of the swap contract.

The value of a forward contract at expiration is: A- positive to the long party if the spot price is higher than the forward price. B- negative to the short party if the forward price is higher than the spot price. C- positive to the short party if the spot price is higher than the forward price.

The yield spread of a specific bond over the standard swap rate in that currency of the same tenor is best described as the: A- I-spread. B- Z-spread. C- G-spread.

Upon violation of a covenant, which action most likely requires the approval of the owners of some minimum percentage of the principal amount of the bond issue? A- Calling for immediate repayment of the debt B- Waiving the covenant requirement C- Requiring a penalty payment or higher interest rate

Which of the following circumstances will most likely affect the value of an American call option relative to a European call option? A- Dividends are declared B- Expiration date occurs C- The risk-free rate changes

Which of the following combinations of changes in aggregate demand and aggregate supply is most likely to result in decreasing prices? Aggregate demand: A- decreases while aggregate supply increases. B- decreases while aggregate supply decreases. C- increases while aggregate supply decreases.

Which of the following components of the cash flow statement may be prepared under the indirect method under both IFRS and US GAAP? A- Operating. B- Investing. C- Financing.

Which of the following international trade organizations has a mission to help developing countries fight poverty and enhance environmentally sound economic growth? A- World Bank Group (World Bank). B- World Trade Organization (WTO). C- International Monetary Fund (IMF).

Which of the following is a continuation pattern? A- Triangle. B- Triple top. C- Head and shoulders.

Which of the following statements is correct concerning mortgage loan defaults? A- A non-recourse jurisdiction poses higher default risks for lenders. B- In a non-recourse jurisdiction, strategic default will not affect the defaulting borrower's future access to credit. C- When a recourse loan defaults, the mortgaged property is the lender's sole source for recovery of the outstanding mortgage balance.

7. Greenfield investments in infrastructure are most accurately described as investments in assets: A- that are operating profitably. B- that have not yet been constructed. C- related to environmental technology.

A CFA Institute member would violate the standard for material nonpublic information by: A- conducting price distortion practices. B- inappropriately causing others to act. C- inadequately maintaining investment records.

A European call option and a European put option are written on the same underlying, and both options have the same expiration date and exercise price. At expiration, it is possible that both options will have: A- negative values. B- the same value. C- positive values.

A GDP deflator less than 1 indicates that an economy has experienced: A- inflation. B- deflation. C- stagflation.

Compared with exchange-traded derivatives, over-the-counter derivatives would most likely be described as: A- standardized. B- less transparent. C- more transparent.

. Which type of fixed-income security is most likely to have coupon payments that reset periodically? A- Callable bonds B- Floating-rate notes C- Convertible bonds

A financial analyst determines that a company appears to be in the process of accumulating a "war chest." It is most likely that she will conclude that it will be used for: A- recapitalization. B- strategic acquisitions. C- share buybacks.

A financial intermediary buys a stock and then resells it a few days later at a higher price. Which intermediary would this most likely describe? A- Broker. B- Dealer. C- Arbitrageur.

A firm has bonds with a $10.0 million face value outstanding. The book value of the bond liability is $10.2 million when the firm redeems the bonds for face value. Redeeming the bonds will result in: A- a loss on the income statement and a financing cash outflow. B- a gain on the income statement and a financing cash outflow. C- a loss on the income statement and a operating cash outflow.

A firm issues a bond with a coupon rate of 5.00% when the market interest rate is 5.50% on bonds of comparable risk and terms. One year later, the market interest rate increases to 6.00%. Based on this information, the effective interest rate is: A- 5.00%. B- 5.50%. C- 6.00%.

A population that is rapidly aging would most likely cause the growth rate of the industry producing eye glasses and contact lenses to: A- decrease. B- increase. C- not change.

A portfolio on the capital market line with returns greater than the returns on the market portfolio represents a(n): A- lending portfolio. B- borrowing portfolio. C- unachievable portfolio.

An analyst who bases the calculation of intrinsic value on dividend-paying capacity rather than expected dividends will most likely use the: A- dividend discount model. B- free cash flow to equity model. C- cash flow from operations model.

Fiduciary duty is a standard most likely to be upheld by members of a(n): A- employer. B- profession. C- not-for-profit body.

Holly Baker, CFA is explaining the CFA Institute Code of Ethics to a client. Which of the following statements could Baker make to most likely reflect disciplinary sanctions the CFA Institute may impose? Sanctions include: A- fines for violations. B- revocation of membership. C- banishment from the industry.

In a low interest rate environment, the effective duration of a callable bond relative to a comparable non-callable bond, will most likely be: A- higher. B- lower. C- the same.

The characteristic business cycle patterns of trough, expansion, peak, and contraction are: A- periodic. B- recurrent. C- of similar duration.

The market value of an undervalued asset is: A- greater than the asset's intrinsic value. B- the value at which the asset can currently be bought or sold. C- equal to the present value of all the asset's expected cash flows.

The sustainable growth rate is best estimated as: A- the weighted average of capital and labor growth rates. B- growth in the labor force plus growth of labor productivity. C- growth in total factor productivity plus growth in the capital-to-labor ratio.

Under IFRS, the statement of shareholders' equity presents information about the: A- carrying amounts of each component of equity as of the end of the year only. B- effects of any accounting changes retrospectively applied to previous periods. C- contracts that give rise to a financial asset for one entity and a financial liability or equity instrument for another entity.

Under US GAAP, a company's comprehensive income is reported as: A- net income less common stock dividends. B- the change in equity during a period from transactions and other events and circumstances from non-owner sources. C- revenue less expense items that are excluded from the net income calculation.

When the spread between 10-year US Treasury yields and the federal funds rate narrows and at the same time the prime rate stays unchanged, this mix of indicators most likely forecasts future economic: A- growth. B- decline. C- stability.

When total revenue is greater than total variable costs but less than total costs, in the short term a firm will most likely: A- exit the market. B- stay in the market. C- shut down production.

Which of the following events will most likely increase the short-term bond yield volatility? A- Slow economic growth expectation B- Central bank engaging in expansionary monetary policy C- High inflation expectation

Which of the following factors would best justify a decision to avoid investing in a country's sovereign debt? A- Freely floating currency B- A population that is not growing C- Suitable checks and balances in policymaking

Which of the following firms would most likely be appropriately valued using the constant growth DDM? A- An auto manufacturer. B- A producer of bread and snack foods. C- A biotechnology firm in existence for two years.

Which of the following groups would be most likely to suffer losses from the imposition of a tariff on steel imports? A- Domestic steel producers. B- Workers in the domestic auto industry. C- Workers in the domestic steel industry.

Which of the following statements about the behavior of firms in a perfectly competitive market is least accurate? A- A firm experiencing economic losses in the short run will continue to operate if its revenues are greater than its variable costs. B- A firm that is producing less than the quantity for which marginal cost equals the market price would lose money by increasing production. C- If firms are earning economic profits in the short run, new firms will enter the market and reduce economic profits to zero in the long run.

Which of the following statements regarding stakeholder management is most accurate? A- Company management ensures compliance with all applicable laws and regulations. B- Directors are excluded from voting on transactions in which they hold material interest. C- The use of variable incentive plans in executive remuneration is decreasing.

Zimt AG presents its financial statements in accordance with US GAAP. In Year 3, Zimt discloses a valuation allowance of $1,101 against total deferred tax assets of $19,201. In Year 2, Zimt disclosed a valuation allowance of $1,325 against total deferred tax assets of $17,325. The change in the valuation allowance most likely indicates that Zimt's: A- deferred tax liabilities were reduced in Year 3. B- expectations of future earning power has increased. C- expectations of future earning power has decreased.

Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared to the cost of replacing the inventory, during periods of rising prices the ending inventory balance reported by: A- Zimt is too high. B- Nutmeg is too low. C- Nutmeg is too high.

he set of portfolios on the minimum-variance frontier that dominates all sets of portfolios below the global minimum-variance portfolio is the: A- capital allocation line. B- Markowitz efficient frontier. C- set of optimal risky portfolios.

or a company without a clearly identifiable operating cycle, current liabilities are expected to be settled within: A- six months. B- one year. C- two years.

If a company capitalizes an expenditure related to capital assets instead of expensing it, ignoring taxes, the company will most likely report: A- a lower cash flow per share in that period. B- the same free cash flow to the firm (FCFF) in that period. C- a higher earnings per share in future periods.

B The FCFF [Cash flow from operations (CFO) + Interest × (1 − t) − Capital expenditures] would be the same. CFO and capital expenditures would both increase by the same amount (ignoring taxes). Therefore, the net effect on FCFF would be zero.

Which of the following financial intermediaries is most likely to provide liquidity service to its clients? A- Brokers B- Dealers C- Exchanges

B The service that dealers provide is liquidity. Liquidity is the ability to buy or sell with low transaction costs when investors want to trade. By allowing their clients to trade when they want to trade, dealers provide liquidity to them.A trader seeking to sell a very large block of stock for her client will most likely execute the trade in a(n): quote-driven market. order-driven market. brokered market.

"Other current assets" typically include: A- trade receivables. B- customer prepayments. C- items deemed too small to be individually listed on the balance sheet.

8. In the presence of tight monetary policy and loose fiscal policy, the most likely effect on interest rates and the private sector share in GDP are: Interest rate Share of private sector A- lower lower B- higher higher C- higher lower

A liquid secondary bond market allows an investor to sell a bond at: A- the desired price. B- a price at least equal to the purchase price. C- a price close to the bond's fair market value.

A market characterized by low barriers to entry, good substitutes, limited pricing power, and marketing of product features is best characterized as: A- oligopoly. B- perfect competition. C- monopolistic competition.

A market structure characterized by many sellers with each having some pricing power and product differentiation is best described as: A- oligopoly. B- perfect competition. C- monopolistic competition.

An oligopolistic industry has: A- few barriers to entry. B- few economies of scale. C- a great deal of interdependence among firms.

Bonds issued by the World Bank would most likely be: A- quasi-government bonds. B- global bonds. C- supranational bonds.

During a period of rising inventory costs, a company decides to change its inventory method from FIFO to the weighted average cost method. Under the weighted average method, which of the following financial metrics will most likely be higher than under FIFO? A- Current ratio B- Number of days in inventory C- Debt-to-equity ratio

In a bankruptcy proceeding, when the absolute priority of claims is enforced: A- senior subordinated creditors rank above second lien holders. B- preferred equity shareholders rank above unsecured creditors. C- creditors with a secured claim have the first right to the value of that specific property.

In a developed economy, the primary source of growth in potential GDP is: A- capital investment. B- labor supply growth. C- technology advances.

The Kondratieff wave is a cycle of: A- 18 years. B- 36 years. C- 54 years.

The best model to use when valuing a young dividend-paying company that is just entering the growth phase is most likely the: A- Gordon growth model. B- two-stage dividend discount model. C- three-stage dividend discount model.

The board of directors committee most likely to be responsible for monitoring the performance of a project that requires a large capital expenditure is: A- the risk committee. B- the audit committee. C- the investment committee.

The impairment of intangible assets with finite lives affects: A- the balance sheet but not the income statement. B- the income statement but not the balance sheet. C- both the balance sheet and the income statement.

The item "retained earnings" is a component of: A- assets. B- liabilities. C- shareholders' equity.

The price value of a basis point (PVBP) is best interpreted as an estimate of the change in the full price of a bond for a 1 basis point: A- decrease in the yield to maturity. B- increase in the yield to maturity. C- increase and decrease in the yield to maturity.

Two risk managers are discussing how an organization's risk tolerance should be determined. The first manager says, "The risk tolerance must reflect the losses or shortfalls that will cause the organization to fail to meet critical objectives." The second manager responds, "The risk tolerance must reflect the external forces that bring uncertainty to the organization." Which of them is most likely correct? A- The second risk manager B- The first risk manager C- Both risk managers

When forecasting earnings, an analyst's best approach is to: A- establish a precise forecast based on the results of economic and financial analysis. B- calculate a range of possibilities based on the results of financial analysis. C- utilize the results of financial analysis and professional judgment.

When making a decision in investments involving a statistically significant result, the: A- economic result should be presumed meaningful. B- statistical result should take priority over economic considerations. C- economic logic for the future relevance of the result should be further explored.

Which of the following indicators is most appropriate in predicting a turning point in the economy? A- The Industrial Production Index B- The average bank prime lending rate C- Average weekly hours, manufacturing

Which of the following is not a primary goal of raising equity capital? A- To finance the purchase of long-lived assets. B- To finance the company's revenue-generating activities. C- To ensure that the company continues as a going concern.

Which of the following statements about financial reporting is most accurate? A- Conservative accounting choices help a company with good performance issue higher quality financial reports. B- High-quality financial reports contain information that is relevant, complete, conservative, and free from error. C- Aggressive accounting choices in the current period may decrease the company's future reported earnings.

Which of the following statements about the SML and the CML is least accurate? A- Securities that plot above the SML are undervalued. B- Investors expect to be compensated for systematic risk. C- Securities that plot on the SML have no value to investors.

Which of the following statements best describes an aspect of the Professional Conduct Program process? A- Inquiries are not initiated in response to information provided by the media. B- Investigations result in Disciplinary Review Committee panels for each case. C- Investigations may include requesting a written explanation from the member or candidate.

Which of the following statements is most accurate? The difference between taxes payable for the period and the tax expense recognized on the financial statements results from differences: A- in management control. B- between basic and diluted earnings. C- between financial and tax accounting.

With regard to the Ricardian and Heckscher-Ohlin models of international trade, the amount of capital relative to labor within a country is a factor in: A- both of these models. B- neither of these models. C- only one of these models.

A company previously expensed the incremental costs of obtaining a contract. All else being equal, adopting the May 2014 IASB and FASB converged accounting standards on revenue recognition makes the company's profitability initially appear: A- lower. B- unchanged. C- higher.

C Under the converged accounting standards, the incremental costs of obtaining a contract and certain costs incurred to fulfill a contract must be capitalized. If a company expensed these incremental costs in the years prior to adopting the converged standards, all else being equal, its profitability will appear higher under the converged standards.

The value of a test statistic is best described as the basis for deciding whether to: A- reject the null hypothesis. B- accept the null hypothesis. C- reject the alternative hypothesis.

Two portfolios have unimodal return distributions. Portfolio 1 has a skewness of 0.77, and Portfolio 2 has a skewness of -1.11. Q. Which of the following is correct? A- For Portfolio 1, the median is less than the mean. B- For Portfolio 1, the mode is greater than the mean. C- For Portfolio 2, the mean is greater than the median.

State the approximate probability that a normal random variable will fall within the following intervals: Q. Mean plus or minus two standard deviations.

95%

State the approximate probability that a normal random variable will fall within the following intervals: Q. Mean plus or minus three standard deviations.

99%

The null hypothesis is most appropriately rejected when the p-value is: A- close to zero. B- negative. C- close to one.

Which of the following statements is correct with respect to the null hypothesis? A- It is considered to be true unless the sample provides evidence showing it is false. B- It can be stated as "not equal to" provided the alternative hypothesis is stated as "equal to." C- In a two-tailed test, it is rejected when evidence supports equality between the hypothesized value and population parameter.

Which of the following assets most likely requires the use of a multivariate distribution for modeling returns? A- A call option on a bond B- A portfolio of technology stocks C- A stock in a market index

A Monte Carlo simulation can be used to: A- directly provide precise valuations of call options. B- simulate a process from historical records of returns. C- test the sensitivity of a model to changes in assumptions.

A Type I error is best described as the probability of: A- failing to reject a false null hypothesis. B- rejecting a true alternative hypothesis. C- rejecting a true null hypothesis.

A continuous uniform distribution has the parameters a=4 and b=10. TheF(20)is: A- 0.25. B- 0.50. C- 1.00.

A return distribution with frequent small gains and a few extreme losses is most likely to be called: A- leptokurtic. B- positively skewed. C- negatively skewed.

A population has a non-normal distribution with mean µ and variance σ2. The sampling distribution of the sample mean computed from samples of large size from that population will have: A- the same distribution as the population distribution. B- its mean approximately equal to the population mean. C- its variance approximately equal to the population variance.

After estimating the probability that an investment manager will exceed his benchmark return in each of the next two quarters, an analyst wants to forecast the probability that the investment manager will exceed his benchmark return over the two-quarter period in total. Assuming that each quarter's performance is independent of the other, which probability rule should the analyst select? A- Addition rule B- Multiplication rule C- Total probability rule

Given a portfolio of five stocks, how many unique covariance terms, excluding variances, are required to calculate the portfolio return variance? A- 10 B- 20 C- 25

If an estimator is consistent, an increase in sample size will increase the: A- accuracy of estimates. B- efficiency of the estimator. C- unbiasedness of the estimator.

In the step "stating a decision rule" in testing a hypothesis, which of the following elements must be specified? A- Critical value B- Power of a test C- Value of a test statistic

A normally distributed random variable has a mean of 100 and a standard deviation of 12. The probability of observing a value greater than 82 is the cumulative distribution function (cdf) of the standard normal variable: A- N(1.5). B- N(−1.5). C- 1 − N(1.5).

A random number between zero and one is generated according to a continuous uniform distribution. What is the probability that the first number generated will have a value of exactly 0.30? A- 0% B- 30% C- 70%

A random variable with a finite number of equally likely outcomes is best described by a: A- discrete uniform distribution. B- binomial distribution. C- continuous uniform distribution.

All else held constant, the width of a confidence interval for a population mean is most likely to be smaller if the sample size is: A- larger and the degree of confidence is lower. B- larger and the degree of confidence is higher. C- smaller and the degree of confidence is lower.

An analyst is examining a large sample with an unknown population variance. To test the hypothesis that the historical average return on an index is less than or equal to 6%, which of the following is the most appropriate test? A- One-tailed z-test B- Two-tailed z-test C- One-tailed F-test

Which of the following groups best illustrates a sample? A- The set of all estimates for Exxon Mobil's EPS for next financial year. B- The FTSE Eurotop 100 as a representation of the European stock market. C- UK shares traded on Wednesday of last week that also closed above £120/share on the London Stock Exchange.

Which of the following statements regarding a one-tailed hypothesis test is correct? A- The rejection region increases in size as the level of significance becomes smaller. B- A one-tailed test more strongly reflects the beliefs of the researcher than a two-tailed test. C- The absolute value of the rejection point is larger than that of a two-tailed test at the same level of significance.

Alcorn Mutual Funds is placing large advertisements in several financial publications. The advertisements prominently display the returns of 5 of Alcorn's 30 funds for the past 1-, 3-, 5-, and 10-year periods. The results are indeed impressive, with all of the funds beating the major market indexes and a few beating them by a large margin. Is the Alcorn family of funds superior to its competitors? A- Yes B- No C- Not enough information provided to answer.

An analysis of US share prices determines that there is consistent underpricing by $0.02 with a p-value of 0.0012. Assuming an average transaction cost of $0.05, which statement is most accurate? The underpricing result is: A- statistically significant and indicates a possible arbitrage opportunity. B- not economically meaningful. C- not statistically significant.

An equally weighted portfolio is composed of four stocks. An analyst knows the mean and variance for each of the four stocks. In order to estimate the portfolio mean and variance, the analyst will require the stocks': A- skewness. B- pairwise correlations. C- kurtosis.

As the reserve requirement increases, the money multiplier: A- increases. B- decreases. C- remains the same.

2. Which of the following best describes the benefit of cumulative share voting? A- It provides significant minority shareholders with proportional representation on the board. B- It prevents minority shareholders from exercising excessive control. C- If cumulative. dividends are not paid, preferred shareholders are given voting rights.

7. In a defined contribution pension plan: A- the employee accepts the investment risk. B- the plan sponsor promises a predetermined retirement income to participants. C- the plan manager attempts to match the fund's assets to its liabilities.

A "buy-and-hold" investor purchases a fixed-rate bond at a discount and holds the security until it matures. Which of the following sources of return is least likely to contribute to the investor's total return over the investment horizon, assuming all payments are made as scheduled? A- Capital gain B- Principal payment C- Reinvestment of coupon payments

A "pay-as-you-go" rule, which requires that any tax cut or increase in entitlement spending be offset by an increase in other taxes or reduction in other entitlement spending, is an example of which fiscal policy stance? A- Neutral. B- Expansionary. C- Contractionary.

A 10-year bond was issued four years ago. The bond is denominated in US dollars, offers a coupon rate of 10% with interest paid semi-annually, and is currently priced at 102% of par. The bond's: A- tenor is six years. B- nominal rate is 5%. C- redemption value is 102% of the par value.

A CMO is structured with PAC tranches. The tranche most likely to provide protection against both extension risk and contraction risk is the tranche experiencing actual prepayment rates that are: A- between the lower and upper PSA prepayment assumption. B- more than the higher PSA prepayment assumption. C- less than the lower PSA prepayment assumption.

A German publicly traded company, to raise new capital, gave its existing shareholders the opportunity to subscribe for new shares. The existing shareholders could purchase two new shares at a subscription price of €4.58 per share for every 15 shares held. This is an example of a(n): A- rights offering. B- private placement. C- initial public offering

A ba1lloon payment equal to a mortgage's original loan amount is a characteristic of a: A- bullet mortgage. B- fully amortizing mortgage. C- partially amortizing mortgage.

A beneficial opportunity created by the derivatives market is the ability to: A- adjust risk exposures to desired levels. B- generate returns proportional to movements in the underlying. C- simultaneously take long positions in multiple highly liquid fixed-income securities.

A benefit of risk budgeting is that it: A- considers risk tradeoffs. B- establishes a firm's risk tolerance. C- reduces uncertainty facing the firm.

A bond has a 10-year maturity, a $1,000 face value, and a 7% coupon rate. If the market requires a yield of 8% on similar bonds, it will most likely trade at a: A- discount. B- premium. C- discount or premium, depending on its duration.

A bond issued internationally, outside the jurisdiction of the country in whose currency the bond is denominated, is best described as a: A- Eurobond. B- foreign bond. C- municipal bond.

A bond portfolio manager who wants to estimate the sensitivity of the portfolio's value to changes in the 5-year spot rate should use: A- a key rate duration. B- a Macaulay duration. C- an effective duration.

A central bank conducts monetary policy primarily by altering: A- the policy rate. B- the inflation rate. C- the long-term interest rate.

A central bank that decides the desired levels of interest rates and inflation and the horizon over which the inflation objective is to be achieved is most accurately described as being: A- target independent and operationally independent. B- target independent but not operationally independent. C- operationally independent but not target independent.

A change in which of the following best describes a macroeconomic influence on industry growth? A- The cost of debt B- Personal spending habits C- Population size

A company acquires a product patent at the beginning of Year 1 for $5,000,000 and makes the following assumptions about its use: Assumptions and Production Useful life Three years Production capacity 800 unitsUnits produced in Year 1300 units Residual value 0 The company will experience the highest asset turnover ratio in the first year under which of the following amortization methods? A- Double declining balance B- Straight line C- Units of production

A company enters into a finance lease agreement to acquire the use of an asset for three years with lease payments of €19,000,000 starting next year. The leased asset has a fair market value of €49,000,000 and the present value of the lease payments is €47,250,188. Based on this information, the value of the lease payable reported on the company's balance sheet is closest to: A- €47,250,188. B- €49,000,000. C- €57,000,000.

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 company issued bonds in 2012 that mature in 2022. The measurement basis that will most likely be used on the 2012 balance sheet for the bonds is: A- amortized cost. B- market value. C- historical cost.

A company operating in a highly fragmented and competitive industry reported an increase in return on equity (ROE) over the prior year. Which of the following reasons for the increase in ROE is least likely to be sustainable? The company: A- increased the prices of its product significantly. B- decided to make greater use of long-term borrowing capacity. C- implemented a new IT system, allowing it to reduce working capital levels as a percentage of assets.

A company owns the following three assets: A customer list expected to provide benefits for two years. The company expects to sell products to customers from this list for the foreseeable future. A license that expires in two years but can be renewed at little or no cost and relates to a service the company plans to market for the foreseeable future. A trademark that expires in two years but can be renewed and relates to a product the company plans to sell for the foreseeable future. Which of the listed intangible assets is most likely to be amortized? A- Customer list B- Trademark C- License

A company plans to hire additional factory employees. In the short run, marginal returns are most likely to decrease if: A- the factory is operating at full capacity. B- the factory is experiencing a labor shortage. C- workers are required to multitask and share duties.

A company receives advance payments from customers that are immediately taxable but will not be recognized for accounting purposes until the company fulfills its obligation. The company will most likely record: A- a deferred tax asset. B- a deferred tax liability. C- no deferred tax asset or liability.

A company that reports under IFRS shows internally generated development costs in its balance sheet. Which of the following policies should raise concern when analyzing that company? A- Intangibles capitalization B- Revenue recognition C- Long-lived asset depreciation

A company values its ending inventory using the prices of its most recent purchases. The inventory valuation method that the company is most likely using is: A- FIFO. B- Weighted average cost. C- LIFO.

A company with no debt or convertible securities issued publicly traded common stock three times during the current fiscal year. Under both IFRS and US GAAP, the company's: A- basic EPS equals its diluted EPS. B- capital structure is considered complex at year-end. C- basic EPS is calculated by using a simple average number of shares outstanding.

A company's financial position would best be evaluated using the: A- balance sheet. B- income statement. C- statement of cash flows.

A consultant sees the following information about a publicly listed company: - The company has a 12-person board of directors. - The board is chaired by the chief executive officer (CEO) of the company. - All members of the audit committee are outside directors with relevant financial and accounting experience. Which of the following changes would provide the greatest improvement in the corporate governance of this company? A- The chairman of the board should be an independent director. B- The company's Vice President of Finance should be a member of the audit committee. C- The board of directors should have an odd number of directors to preclude tied votes.

A corporate bond is quoted at a spread of +235 basis points over an interpolated 12-year U.S. Treasury bond yield. This spread is: A- a G-spread. B- an I-spread. C- a Z-spread.

A correct description of fintech is that it: A- is driven by rapid growth in data and related technological advances. B- increases the need for intermediaries. C- is at its most advanced state using systems that follow specified rules and instructions.

A country that maintains a target exchange rate is most likely to have which outcome when its inflation rate rises above the level of the inflation rate in the target country? A- An increase in short-term interest rates. B- An increase in the domestic money supply. C- An increase in its foreign currency reserves.

A country that wishes to narrow its trade deficit devalues its currency. If domestic demand for imports is perfectly price-inelastic, whether devaluing the currency will result in a narrower trade deficit is least likely to depend on: A- the size of the currency devaluation. B- the country's ratio of imports to exports. C- price elasticity of demand for the country's exports.

A country with a trade deficit will most likely: A- have an offsetting capital account surplus. B- save enough to fund its investment spending. C- buy assets from foreigners to fund the imbalance.

A credit analyst is evaluating the credit worthiness of three companies: a construction company, a travel and tourism company, and a beverage company. Both the construction and travel and tourism companies are cyclical, whereas the beverage company is non-cyclical. The construction company has the highest debt level of the three companies. The highest credit risk is most likely exhibited by the: A- construction company. B- beverage company. C- travel and tourism company.

A credit rating agency uses "scale and diversification" as one of its metrics to assess credit risk. Which of the following would most likely be included in that category? A- Purchasing power with suppliers B- Cost structure C- Operating cash flow less dividends

A current account deficit is most likely to decrease as a result of an increase in: A- domestic savings. B- private investment. C- the fiscal budget deficit.

A decrease in the target U.S. federal funds rate is least likely to result in: A- a proportionate decrease in long-term interest rates. B- an increase in consumer spending on durable goods. C- depreciation of the U.S.dollar on the foreign exchange market.

An agricultural firm operating in a perfectly competitive market supplies wheat to manufacturers of consumer food products and animal feeds. If the firm were able to expand its production and unit sales by 10% the most likely result would be: A- a 10% increase in total revenue. B- a 10% increase in average revenue. C- an increase in total revenue of less than 10%.

An analyst determines the intrinsic value of an equity security to be equal to $55. If the current price is $47, the equity is most likely: A- undervalued. B- fairly valued. C- overvalued.

An analyst estimates the intrinsic value of a stock to be in the range of €17.85 to €21.45. The current market price of the stock is €24.35. This stock is most likely: A- overvalued. B- undervalued. C- fairly valued.

An analyst examining the statement of cash flows for possible manipulation is least likely to be concerned about a(n): A- cash flow from operations to net income ratio consistently higher than 1. B- increase in cash from operations arising from a large change in accounts payable. C- change in the classification of interest paid from an operating cash flow to a financing cash flow.

An analyst has calculated a ratio using as the numerator the sum of operating cash flow, interest, and taxes and as the denominator the amount of interest. What is this ratio, what does it measure, and what does it indicate? A- This ratio is an interest coverage ratio, measuring a company's ability to meet its interest obligations and indicating a company's solvency. B- This ratio is an effective tax ratio, measuring the amount of a company's operating cash flow used for taxes and indicating a company's efficiency in tax management. C- This ratio is an operating profitability ratio, measuring the operating cash flow generated accounting for taxes and interest and indicating a company's liquidity.

An analyst is comparing a firm to its competitors. The firm has a deferred tax liability that results from accelerated depreciation for tax purposes. The firm is expected to continue to grow in the foreseeable future. How should the liability be treated for analysis purposes? A- It should be treated as equity at its full value. B- It should be treated as a liability at its full value. C- The present value should be treated as a liability with the remainder being treated as equity.

An analyst makes the following statement: "Use of P/E and other multiples for analysis is not effective because the multiples are based on historical data and because not all companies have positive accounting earnings." The analyst's statement is most likely: A- inaccurate with respect to both historical data and earnings. B- accurate with respect to historical data and inaccurate with respect to earnings. C- inaccurate with respect to historical data and accurate with respect to earnings.

An analyst notes that a company's most recent financial statements show £65 million in net income, £7 million in dividends paid to common shareholders, and £5 million of other net expense items excluded from the net income calculation. The company's comprehensive income is: A- £60 million. B- £65 million. C- £53 million.

An analyst observes a 20-year, 8% option-free bond with semiannual coupons. The required yield-to-maturity on a semiannual bond basis was 8%, but suddenly it decreased to 7.25%. As a result, the price of this bond: A- increased. B- decreased. C- stayed the same.

An analyst reviews a corporate bond indenture that contains these two covenants: The borrower will pay interest semiannually and principal at maturity. The borrower will not incur additional debt if its debt-to-capital ratio is more than 50%. What types of covenants are these? A- Covenant 1 is affirmative, and Covenant 2 is negative. B- Both are affirmative covenants. C- Covenant 1 is negative, and Covenant 2 is affirmative.

An analyst uses a multi-factor model to estimate the expected returns of various securities. The model analyzes historical and cross-sectional return data to identify factors that explain the variance or covariance in the securities' observed returns. This model is most likely a: A- statistical factor model. B- macroeconomic factor model. C- fundamental factor model.

An analyst uses a stock screener and selects the following metrics from his equity universe: - price-to-equity ratio lower than the median P/E - price-to-book value ratio lower than the median P/BV The stocks selected would be most appropriate for portfolios for which type of investors? A- Value investors B- Growth investors C- Market-oriented investors

An analyst who uses the standard deviation of recent prices to identify overbought or oversold conditions is most likely to employ: A- Bollinger bands. B- a Relative Strength Index. C- a rate of change oscillator.

An analyst would most likely conduct additional analysis when faced with which of the following financial presentations? A- A non-GAAP financial measure that excludes an expense that is likely to recur B- Reporting a non-GAAP financial measure in an SEC filing C- A change from LIFO inventory accounting to FIFO

An analyst writes in an economic report that the current phase of the business cycle is characterized by accelerating inflationary pressures and borrowing by companies. The analyst is most likely referring to the: A- peak of the business cycle. B- contraction phase of the business cycle. C- early expansion phase of the business cycle.

An analyst's examination of the performance of a company is least likely to include an assessment of a company's: A- assets relative to its liabilities. B- profitability. C- cash flow generating ability.

An arbitrage opportunity is least likely to be exploited when: A- one position is illiquid. B- the price differential between assets is large. C- the investor can execute a transaction in large volumes.

An arbitrageur will most likely execute a trade when: A- transaction costs are low. B- costs of short-selling are high. C- prices are consistent with the law of one price.

An assumption of technical analysis is that market prices: A- exhibit identifiable trends and patterns that persist and repeat. B- are the only information necessary to analyze a freely trading market. C- reflect supply and demand conditions because actual transactions reflect rational decisions by buyers and sellers.

CROCO S.p.A sells an intangible asset with a historical acquisition cost of €12 million and an accumulated depreciation of €2 million and reports a loss on the sale of €3.2 million. Which of the following amounts is most likely the sale price of the asset? A- €6.8 million B- €8.8 million C- €13.2 million

Carey Company adheres to US GAAP, whereas Jonathan Company adheres to IFRS. It is least likely that: A- Carey has reversed an inventory write-down. B- Jonathan has reversed an inventory write-down. C- Jonathan and Carey both use the FIFO inventory accounting method.

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.

Cash flows related to futures margin least likely include: A- interest on the margin loan. B- deposits to meet margin calls. C- interest received on collateral.

China Construction Development Corporation needs to finance a three-year construction project in Singapore. The corporation plans to issue a bond with coupon payments to be paid in Chinese yuan and principal to be repaid in Singapore dollars. This bond is most likely an example of a: A- dual currency bond. B- currency option bond. C- foreign currency bond.

Choices that must be made when constructing a security market index least likely include whether to: A- use a nominal or interval scale. B- measure the performance of an entire market or market segment. C- weight the securities equally or by some firm-specific characteristic.

Claire Marlin, CFA, manages an investment fund specializing in foreign currency trading. Marlin writes a report to investors that describes the basic characteristics of her strategy, which is based on an expected appreciation of the euro relative to other major currencies. Marlin shows the projected returns from the strategy if the euro appreciates less than 5%, between 5% and 10%, or more than 10%, while clearly stating that these forecasts are her opinion. Has Marlin violated the Standard related to communication with clients? A- Yes, because she did not include a scenario in which the euro depreciates. B- No, because she disclosed the basic characteristics of the investment. C- No, because she distinguished fact from opinion and discussed how the strategy may perform under a range of scenarios.

Clauses that specify the rights of the bondholders and any actions that the issuer is obligated to perform or is prohibited from performing are: A- covenants. B- collaterals. C- credit enhancements.

Combining a protective put with a forward contract generates equivalent outcomes at expiration to those of a: A- fiduciary call. B- long call combined with a short asset. C- forward contract combined with a risk-free bond.

Commodity index values are based on: A- futures contract prices. B- the market price of the specific commodity. C- the average market price of a basket of similar commodities.

Compared to an asset with no net cost of carry, holding costs that are greater than benefits: A- increase the no-arbitrage price of the forward contract. B- decrease the no-arbitrage price of the forward contract. C- have no effect on the no-arbitrage price of the forward contract.

Compared to exchange-traded funds (ETFs), open-end mutual funds are typically associated with lower: A- brokerage costs. B- minimum investment amounts. C- management fees.

Compared with a finance lease, an operating lease: A- is similar to renting an asset. B- is equivalent to the purchase of an asset. C- term is for the majority of the economic life of the asset.

Compared with investment-grade bonds, the spread movements on high-yield bonds are influenced: A- less by interest rate changes and exhibit a greater correlation with movements in equity markets. B- less by interest rate changes and exhibit a lower correlation with movements in equity markets. C- more by interest rate changes and exhibit a greater correlation with movements in equity markets.

Compared with other investment asset classes, an investment in real estate is least likely to be characterized by: A- homogeneity. B- fixed location. C- basic indivisibility.

Compared with the underlying spot market, derivative markets are more likely to have: A- greater liquidity. B- higher transaction costs. C- higher capital requirements.

Compared with the weighted average coupon rate of its underlying pool of mortgages, the pass-through rate on a mortgage pass-through security is: A- lower. B- the same. C- higher.

Compared with traditional investments, alternative investments are more likely to have: A- greater use of leverage. B- long-only positions in liquid assets. C- more transparent and reliable risk and return data.

Conservative, rather than aggressive, accounting is most likely associated with: A- increased sustainability of earnings. B- higher current reported performance. C- recognition of losses once certain.

Consider a $100 par value bond with a 7% coupon paid annually and 5 years to maturity. At a discount rate of 6.5%, the value of the bond today is $102.08. One day later, the discount rate increases to 7.5%. Assuming the discount rate remains at 7.5% over the remaining life of the bond, what is most likely to occur to the price of the bond between today and maturity? The price: A- decreases then increases. B- increases then decreases. C- decreases then remains unchanged.

Consider a mutual fund that invests primarily in fixed-income securities that have been determined to be appropriate given the fund's investment goal. Which of the following is least likely to be a part of this fund? A- Warrants. B- Commercial paper. C- Repurchase agreements.

Consider bonds that have the same yield to maturity and maturity. The bond with the greatest reinvestment risk is most likely the one selling at: A- a premium. B- par. C- a discount.

Financial reporting is most likely to be decision useful when management's accounting choices are: A- neutral. B- aggressive. C- conservative.

Consider the investment in the following table: Start of Year 1 One share purchased at $100 End of Year 1 $5.00 dividend/share paid and one additional share purchased at $125 End of Year 2 $5.00 dividend/share paid and both shares sold for $140 per share Assuming dividends are not reinvested, compared with the time-weighted return, the money-weighted return is: A- lower. B- the same. C- higher.

Consider two countries, A and B. Country A, a closed country with a relative abundance of labor, holds a comparative advantage in the production of textiles. Country B has a relative abundance of capital. When the textile trade is opened between the two countries, Country A will most likely experience a favorable impact on: A- labor. B- both capital and labor. C- capital.

Contrary to positive bond covenant, negative covenants are most likely: A- costlier. B- legally enforceable. C- enacted at time of issue.

Corporate bond secondary market trading most often occurs: A- on a book-entry basis. B- on organized exchanges. C- prior to settlement at T + 1.

Costs incurred for intangible assets are generally expensed when they are: A- internally developed. B- individually acquired. C- acquired in a business combination.

Credit risk is an important consideration for commercial mortgage-backed securities (CMBS) if the CMBS are backed by mortgage loans that: A- are non-recourse. B- have call protection. C- have prepayment penalty points.

Debt due within one year is considered: A- current. B- preferred. C- convertible.

Deferred tax liabilities result when: A- taxable income in a period is less than reported financial statement income before taxes. B- items of expense are included in financial statement income in earlier periods than those for which taxable income is reported. C- straight-line depreciation methods are used for tax purposes and accelerated methods are employed for financial statement purposes.

Deferred tax liabilities should be treated as equity when: A- they are not expected to reverse. B- the timing of tax payments is uncertain. C- the amount of tax payments is uncertain.

Derivatives pricing models use the risk-free rate to discount future cash flows because these models: A- are based on portfolios with certain payoffs. B- assume that derivatives investors are risk-neutral. C- assume that risk can be eliminated by diversification.

Disclosure of confidential CFA exam information will most likely be detected by the Professional Conduct staff through: A- monitoring online and social media. B- analysis of Proctor Reports. C- annual Professional Conduct Statements.

Distinguishing between current and non-current items on the balance sheet and presenting a subtotal for current assets and liabilities is referred to as: A- a classified balance sheet. B- an unclassified balance sheet. C- a liquidity-based balance sheet.

Diversification benefits from adding hedge funds to an equity portfolio may be limited because: A- correlations tend to increase during periods of financial crisis. B- hedge fund returns are less than perfectly correlated with global equities. C- hedge funds tend to perform better when global equity prices are declining.

Drawbacks of technical analysis include which of the following? A- It identifies changes in trends only after the fact. B- Deviations from intrinsic value can persist for long periods. C- It usually requires detailed knowledge of the financial instrument under analysis.

Earnings that result from non-recurring activities most likely indicate: A- lower-quality earnings. B- biased accounting choices. C- lower-quality financial reporting.

Economic benefits of securitization least likely include: A- reducing excessive lending by banks. B- reducing funding costs for firms that securitize assets. C- increasing the liquidity of the underlying financial assets.

Ed Ingus, CFA, visits the headquarters and main plant of Bullitt Company and observes that inventories of unsold goods appear unusually large. From the CFO, he learns that a recent increase in returned items may result in earnings for the current quarter that are below analysts' estimates. Based on his visit, Ingus changes his recommendation on Bullitt to "Sell." Has Ingus violated the Standard concerning material nonpublic information? A- Yes. B- No, because the information he used is not material. C- No, because his actions are consistent with the mosaic theory.

Effective risk management would most likely attempt to: A- maximize expected. return for a given level of risk. B- minimize risk for a given level of expected return. C- reduce any significant risks the firm is exposed to.

Equality between aggregate expenditure and aggregate output implies that the government's fiscal deficit must equal: A- Private saving - Investment - Net exports. B- Private saving - Investment + Net exports. C- Investment - Private saving + Net exports.

Eurocommerical paper is most likely: A- negotiable. B- denominated in euro. C- issued on a discount basis.

Executive directors are least likely to be included in: A- a supervisory board. B- a one-tier board. C- a management board.

Fairmont Golf issued fixed rate debt when interest rates were 6 percent. Rates have since risen to 7 percent. Using only the carrying amount (based on historical cost) reported on the balance sheet to analyze the company's financial position would most likely cause an analyst to: A- overestimate Fairmont's economic liabilities. B- underestimate Fairmont's economic liabilities. C- underestimate Fairmont's interest coverage ratio.

Fernando's Pasta purchased inventory and later wrote it down. The current net realisable value is higher than the value when written down. Fernando's inventory balance will most likely be: A- higher if it complies with IFRS. B- higher if it complies with US GAAP. C- the same under US GAAP and IFRS.

Financial intermediaries that buy securities from and sell securities to investors are best described as: A- dealers. B- brokers. C- investment bankers.

Flynn Company has a capital structure of 40% debt, 50% common equity, and 10% preferred equity, based on market values. Firms in Flynn's industry have on average 30% debt, 55% common equity, and 15% preferred equity. Flynn's management intends to issue equity shares to bring the proportion of common equity up to 55% and keep the proportion of preferred equity at 10%. To estimate Flynn's WACC, an analyst should use a weight of debt: A- equal to 35%. B- less than 35%. C- greater than 35%.

For a Giffen good, the: A- demand curve is positively sloped. B- substitution effect overwhelms the income effect. C- income and substitution effects are in the same direction.

For a company reporting under IFRS, which of the following events most likely represents low financial reporting quality? The company: A- included gains from foreign exchange rate changes in its cost of goods sold. B- entered a long-term lease for a customized piece of equipment and classified it as a finance lease. C- reported an increase in EPS as a result of the sale of a subsidiary.

For a given CDO, which of the following tranches is most likely to have the highest expected return? A- Equity B- Senior C- Mezzanine

For a given economy and a given period of time, GDP measures the: aggregate income earned by all households, all companies, and the government. total income earned by all of the country's citizens, firms, and the government. total market value produced of resalable and final goods and services. The most appropriate description of what is measured by GDP is given by: A- I only. B- I and II. C- I and III.

For a high-quality debt issuer with a large amount of publicly traded debt, bond investors tend to devote most effort to assessing the issuer's: A- default risk. B- loss severity. C- market liquidity risk.

For a holder of a European option, put-call-forward parity is based on the assumption that: A- no arbitrage is possible within the spot, forward, and option markets. B- the value of a European put at expiration is the greater of zero or the underlying value minus the exercise price. C- the value of a European call at expiration is the greater of zero or the exercise price minus the value of the underlying.

For a portfolio consisting of two assets with a correlation coefficient of +1.0, it is most likely that portfolio risk is: A- equal to the weighted average of the risk of the two assets in the portfolio. B- less than the weighted average of the risk of the two assets in the portfolio. C- greater than the weighted average of the risk of the two assets in the portfolio.

For a small sample with unknown variance, which of the following tests of a hypothesis concerning the population mean is most appropriate? A- A t-test if the population is normally distributed B- A t-test if the population is non-normally distributed C- A z-test regardless of the normality of the population distribution

For a stock that pays no dividends, the value of an American call option is most likely: A- the same as the value of a European call option with otherwise identical features. B- greater than the value of a European call option with otherwise identical features. C- less than the value of a European call option with otherwise identical features.

For an economy that is initially at full-employment real GDP, an increase in aggregate demand will most likely have what effects on the price level and real GDP in the short run? A- Both will increase in the short run. B- Neither will increase in the short run. C- Only one will increase in the short run.

For an option-free bond, effective duration: A- will be equal to modified duration if the yield curve is absolutely flat. B- measures interest rate risk for both parallel and non-parallel benchmark yield curve shifts. C- is an estimate of the percentage change in bond price given a change in the bond's yield to maturity.

For an option-free, fixed-rate bond the coupon reinvestment risk would most likely dominate market price risk when the investment horizon is: A- greater than the Macaulay duration of the bond. B- lower than the Macaulay duration of the bond. C- equal to the Macaulay duration of the bond.

For financial assets classified as held to maturity, 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.

Fran Martin obtains a non-recourse mortgage loan for $500,000. One year later, when the outstanding balance of the mortgage is $490,000, Martin cannot make his mortgage payments and defaults on the loan. The lender forecloses on the loan and sells the house for $315,000. What amount is the lender entitled to claim from Martin? A- $0. B- $175,000. C- $185,000.

Frequency distributions summarize data in: A- a tabular display. B- overlapping intervals. C- a relatively large number of intervals.

From an approved list of 25 funds, a portfolio manager wants to rank 4 mutual funds from most recommended to least recommended. Which formula is most appropriate to calculate the number of possible ways the funds could be ranked? A- Permutation formula B- Multinomial formula C- Combination formula

From an investor's point of view, which of the following equity securities is the least risky? A- Putable preference shares. B- Callable preference shares. C- Non-callable preference shares.

Germany has much more capital per worker than Portugal. In autarky each country produces and consumes both machine tools and wine. Production of machine tools is relatively capital intensive whereas winemaking is labor intensive. According to the Heckscher-Ohlin model, when trade opens: A- Germany should export machine tools and Portugal should export wine. B- Germany should export wine and Portugal should export machine tools. C- Germany should produce only machine tools and Portugal should produce only wine.

Given an independent central bank, monetary policy actions are more likely than fiscal policy actions to be: A- implementable quickly. B- effective when a specific group is targeted. C- effective when combating a deflationary economy.

The convexity of putable bonds is: A- always positive. B- negative for a decrease in yield. C- negative for an increase in yield.

Greene Corporation uses the last-in, first-out (LIFO) inventory method, but most of the other companies in Greene's industry use first-in, first-out (FIFO). To best compare Greene's financial statements with its competitors', an analyst would make which of the following adjustments to Greene's ending inventory? It should be: A- increased by the LIFO reserve. B- decreased by the LIFO reserve. C- increased by the change in the LIFO reserve for that period.

Hedge fund losses are most likely to be magnified by a: A- margin call. B- lockup period. C- redemption notice period.

Hedge funds are similar to private equity funds in that both: A- are typically structured as partnerships. B- assess management fees based on assets under management. C- do not earn an incentive fee until the initial investment is repaid.

Holding all other factors constant, the most likely effect of low demand and heavy new issue supply on bond yield spreads is that yield spreads will: A- widen. B- tighten. C- not be affected.

Holding an asset and buying a put on that asset is equivalent to: A- initiating a fiduciary call. B- buying a risk-free zero-coupon bond and selling a call option. C- selling a risk-free zero-coupon bond and buying a call option.

How does ethical conduct most likely compare with what is legally required? A- Ethical conduct goes beyond what is legally required. B- There are no differences between the two; they are the same. C- Doing what is legally required removes the need for ethical conduct.

How should an analyst most appropriately adjust the financial statements of a firm that uses operating leases to finance its plant and equipment? A- Increase liabilities. B- Decrease long-lived assets. C- Decrease shareholders' equity.

If Brazil and South Africa have free trade with each other, a common trade policy against all other countries, but no free movement of factors of production between them, then Brazil and South Africa are part of a: A- customs union. B- common market. C- free trade area (FTA).

If Investor A has a lower risk aversion coefficient than Investor B, will Investor B's optimal portfolio most likely have a higher expected return on the capital allocation line? A- No, because Investor B has a lower risk tolerance B- No, because Investor B has a higher risk tolerance C- Yes

If a US-based investor purchases a euro-denominated ETF and the euro subsequently depreciates in value relative to the dollar, the investor will have a total return that is: A- lower than the ETF's total return. B- higher than the ETF's total return. C- the same as the ETF's total return.

If a central bank reduces the money supply, this move will most likely lead to a: A- rise in nominal interest rates and a decline in aggregate price level. B- rise in nominal interest rates and a rise in aggregate price level. C- decline in nominal interest rates and a rise in aggregate price level.

If a company has a one-day 5% Value at Risk of $1 million, this means: A- 5% of the time the firm is expected to lose at least $1 million in one day. B- 95% of the time the firm is expected to lose at least $1 million in one day. C- 5% of the time the firm is expected to lose no more than $1 million in one day.

If a company issues shares in exchange for a capital asset, the transaction is most likely reported as: A- supplementary information to the cash flow statement. B- a financing inflow and an investing outflow in the cash flow statement. C- an investing inflow and outflow in the cash flow statement.

If a company purchases an asset with future economic benefits that are highly uncertain, the company should: A- expense the purchase. B- use straight-line depreciation. C- use an accelerated depreciation method.

If a researcher conducting empirical tests of a trading strategy using time series of returns finds statistically significant abnormal returns, then the researcher has most likely found: A- a market anomaly. B- evidence of market inefficiency. C- a strategy to produce future abnormal returns.

If all of the assets and liabilities are listed on the balance sheet broadly in order of how easily they can be converted into cash, the presentation format is best described as: A- liquidity based. B- current/non-current. C- classified

If inventory unit costs are increasing from period-to-period, a LIFO liquidation is most likely to result in an increase in: A- gross profit. B- LIFO reserve. C- inventory carrying amounts.

If money neutrality holds, the effect of an increase in the money supply is: A- higher prices. B- higher output. C- lower unemployment.

If relative to prior values of their respective indicators, the inventory-sales ratio has risen, unit labor cost is stable, and real personal income has decreased, it is most likely that a peak in the business cycle: A- has occurred. B- is just about to occur. C- will occur sometime into the future.

If the net cost of carry of an asset is positive, then the price of a forward contract on that asset is most likely: A- lower than if the net cost of carry was zero. B- the same as if the net cost of carry was zero. C- higher than if the net cost of carry was zero.

If the risk-free rate increases, the value of an in-the-money European put option will most likely: A- decrease. B- remain the same. C- increase.

If the tax base of an asset exceeds the asset's carrying value and a reversal is expected in the future: A- a deferred tax asset is created. B- a deferred tax liability is created. C- neither a deferred tax asset nor a deferred tax liability is created.

If the technology for an industry involves high fixed capital investment, then one way to seek higher profit growth is by pursuing: A- economies of scale. B- diseconomies of scale. C- removal of features that differentiate the product or service provided.

In a declining interest rate environment, compared with a CMO's Class A tranche, its Class C tranche will be repaid: A- earlier. B- at the same pace. C- later.

In a good risk management process, the duties of Chief Risk Officer (CRO) least likely include: A- setting the risk tolerance of the organization. B- participating in the key strategic decisions of the organization. C- building the risk framework for the organization.

In a highly efficient market, unexpected positive news on a stock is announced to the public. After this announcement, the difference between the market value and the intrinsic value of the stock will most likely: A- remain zero. B- decrease. C- increase.

In a leveraged buyout, covenants in leveraged loans can: A- restrict additional borrowing. B- require lenders to provide transparency. C- provide protection for the general partners.

In a one-period binomial model, the value of an option is best described as the present value of: A- a probability-weighted average of two possible outcomes. B- a probability-weighted average of a chosen number of possible outcomes. C- one of two possible outcomes based on a chosen size of increase or decrease.

In a period of rising prices and stable inventory levels, which inventory valuation method will most likely result in the highest inventory turnover ratio, all else being equal? A- Last-in, first-out (LIFO) B- Weighted average cost C- First-in, first-out (FIFO)

In a purely competitive market, economic losses indicate that: A- price is below average total costs. B- collusion is occurring in the market place. C- firms need to expand output to reduce costs.

In a securitization, the issuer of asset-backed securities is best described as: A- the SPE. B- the seller. C- the servicer.

In a securitization, the special purpose entity (SPE) is responsible for the: A- issuance of the asset-backed securities. B- collection of payments from the borrowers. C- recovery of underlying assets from delinquent borrowers.

In a securitization, time tranching provides investors with the ability to choose between: A- extension and contraction risks. B- senior and subordinated bond classes. C- fully amortizing and partially amortizing loans.

In an acquisition, the interests of minority shareholders are best protected through the use of: A- sell-out rights. B- clawback provisions. C- covenants within indentures.

In an effort to influence the economy, a central bank conducted open market activities by selling government bonds. This action implies that the central bank is most likely attempting to: A- contract the economy by reducing bank reserves. B- expand the economy through a lower policy interest rate. C- contract the economy through a lower policy interest rate.

In auto loan ABSs, the form of credit enhancement that most likely serves as the first line of loss protection is the: A- excess spread account. B- sequential pay structure. C- proceeds from repossession sales.

In behavioral finance, which of the following statements best describes the bias of conservatism? Investors: A- tend to be slow to react to new information and continue to maintain their prior views or forecasts. B- focus on issues in isolation and respond to the issues based on how the issues are posed. C- assess new information and probabilities of outcomes based on similarity to the current state.

In constructing a chart, using a logarithmic scale on the vertical axis is likely to be most useful for which of the following applications? A- The price of gold for the past 100 years. B- The share price of a company over the past month. C- Yields on 10-year US Treasuries for the past 5 years.

In contrast to high-yield credit analysis, investment-grade analysis is more likely to rely on: A- spread risk. B- an assessment of bank credit facilities. C- matching of liquidity sources to upcoming debt maturities.

In early 2018 Sanborn Company must pay the tax authority €37,000 on the income it earned in 2017. This amount was recorded on the company's 31 December 2017 financial statements as: A- taxes payable. B- income tax expense. C- a deferred tax liability.

In major developed bond markets, newly issued sovereign bonds are most often sold to the public via a(n): A- auction. B- private placement. C- best efforts offering.

In periods of rising prices and stable inventory quantities, which of the following best describes the effect on gross profit of using LIFO as compared to using FIFO? A- Lower. B- Higher. C- The same.

In the CFA Institute Standards of Professional Conduct, Standard III-Duties to Clients most likely includes which of the following subsections? A- Performance Presentation B- Knowledge of the Law C- Independence and Objectivity

In the event of default, which of the following is most likely to have the highest recovery rate? A- Second lien B- Senior unsecured C- Senior subordinated

In the free cash flow to equity (FCFE) model, the intrinsic value of a share of stock is calculated as: A- the present value of future expected FCFE. B- the present value of future expected FCFE plus net borrowing. C- the present value of future expected FCFE minus fixed capital investment.

In which of the following situations would a non-parametric test of a hypothesis most likely be used? A- The sample data are ranked according to magnitude. B- The sample data come from a normally distributed population. C- The test validity depends on many assumptions about the nature of the population.

In which of the following ways is an interest rate swap different from a series of forward rate agreements (FRAs)? A- The FRAs that replicate an interest rate swap may be off-market contracts. B- The fixed rate is known at initiation for an interest rate swap but not for a series of FRAs. C- An interest rate swap may have a nonzero value at initiation, while FRAs must have a value of zero at initiation.

Industry consolidation and high barriers to entry most likely characterize which life-cycle stage? A- Mature B- Growth C- Embryonic

Which of the following corporate debt instruments has the highest seniority ranking? A- Second lien B- Senior unsecured C- Senior subordinated

Oil Exploration LLC paid $45,000 in printing, legal fees, commissions, and other costs associated with its recent bond issue. It is most likely to record these costs on its financial statements as: A- an asset under US GAAP and reduction of the carrying value of the debt under IFRS. B- a liability under US GAAP and reduction of the carrying value of the debt under IFRS. C- a cash outflow from investing activities under both US GAAP and IFRS.

Oligopolistic pricing strategy most likely results in a demand curve that is: A- kinked. B- vertical. C- horizontal.

On 15 December 2013, Alpha Corp. issued a 10-year callable bond paying an annual coupon of 8%. The bond is callable in whole or in part at any time after 15 December 2018. This type of callable bond is most likely referred to as: A- American style. B- European style. C- Bermuda style.

One key difference between sovereign bonds and municipal bonds is that sovereign issuers: A- can print money. B- have governmental taxing power. C- are affected by economic conditions.

Over time, a forward contract most likely has variable: A- value and constant price. B- price and constant value. C- value and variable price.

Portfolio diversification is least likely to protect against losses: A- during severe market turmoil. B- when markets are operating normally. C- when the portfolio securities have low return correlation.

Portfolio duration has limited usefulness as a measure of interest rate risk for a portfolio because it: A- assumes yield changes uniformly across all maturities. B- cannot be applied if the portfolio includes bonds with embedded options. C- is accurate only if the portfolio's internal rate of return is equal to its cash flow yield.

Poulter Products reports under IFRS and wrote its inventory value down from cost of $400,000 to net realizable value of $380,000. The most likely financial statement effect of this change is: A- an increase in cost of sales. B- a decrease in depreciation charges. C- a loss reported as other comprehensive income.

Price-to-book value ratios are most appropriate for measuring the relative value of: A- a bank. B- a manufacturing company. C- a mature technology company.

Published ratings on stocks ranging from 1 (strong sell) to 5 (strong buy) are examples of which measurement scale? A- Ordinal B- Interval C- Nominal

Q. A call option on a stock index is valued using a three-step binomial tree with an up move that equals 1.05 and a down move that equals 0.95. The current level of the index is $190, and the option exercise price is $200. If the option value is positive when the stock price exceeds the exercise price at expiration and $0 otherwise, the number of terminal nodes with a positive payoff is: A- one. B- two. C- three.

Ratio analysis is most likely used to assess a borrower's: A- capacity. B- character. C- collateral.

Regulation that restricts some investors from participating in a market will most likely: A- impede market efficiency. B- not affect market efficiency. C- contribute to market efficiency.

Relative to an otherwise similar option-free bond, a: A- putable bond will trade at a higher price. B- callable bond will trade at a higher price. C- convertible bond will trade at a lower price.

Relative to domestic and foreign bonds, Eurobonds are most likely to be: A- bearer bonds. B- registered bonds. C- subject to greater regulation.

Relative to traditional investments, alternative investments are least likely to be characterized by: A- high levels of transparency. B- limited historical return data. C- significant restrictions on redemptions.

Reliable Data Corp offered to pay all the expenses of Lindsey Robinson, CFA, an equity analyst who covers the company, to attend the company's upcoming annual shareholder meeting. Robinson declined their offer and explained to the company that if she had accepted their offer she would most likely be in violation of: A- Standard I-Professionalism B- Standard II-Integrity of Capital Markets C- Standard III-Conflicts of Interest

Researchers have found that value stocks have consistently outperformed growth stocks. An investor wishing to exploit the value effect should purchase the stock of companies with above-average: A- dividend yields. B- market-to-book ratios. C- price-to-earnings ratios.

Residential mortgages that may be included in agency RMBS are least likely required to have: A- a minimum loan-to-value ratio. B- insurance on the mortgaged property. C- a minimum percentage down payment.

Resources controlled by a company from which future economic benefits are expected to flow to the entity are best described as: A- assets. B- equity. C- liabilities.

Risk budgeting includes all of the following except: A- determining the target return. B- quantifying tolerable risk by specific metrics. C- allocating a portfolio by some risk characteristics of the investments.

Risk governance should most appropriately be addressed within an organization at: A- the enterprise level. B- the business unit level. C- the individual employee level.

Risk governance: A- aligns risk management activities with the goals of the overall enterprise. B- defines the qualitative assessment and evaluation of potential sources of risk in an organization. C- delegates responsibility for risk management to all levels of the organization's hierarchy.

Risk that can be attributed to factor(s) that affect a company or industry is best described as: A- non-systematic risk. B- market risk. C- systematic risk.

Securitization benefits investors by: A- providing more direct access to a wider range of assets. B- reducing the inherent credit risk of pools of loans and receivables. C- eliminating cash flow timing risks of an ABS, such as contraction and extension risks.

Which of the following dates in the dividend chronology can fall on a weekend? The A- payment date. B- record date. C- ex-date.

Security market indexes are: A- constructed and managed like a portfolio of securities. B- simple interchangeable tools for measuring the returns of different asset classes. C- valued on a regular basis using the actual market prices of the constituent securities.

Shirley Shea has evaluated an investment proposal and found that its payback period is one year, it has a negative NPV, and it has a positive IRR. Is this combination of results possible? A- Yes. B- No, because a project with a positive IRR has a positive NPV. C- No, because a project with such a rapid payback period has a positive NPV.

Sovereign bonds are described as on-the-run when they: A- are the most recent issue in a specific maturity. B- have increased substantially in price since they were issued. C- receive greater-than-expected demand from auction bidders.

Starting from short-run equilibrium, if aggregate demand is increasing faster than long-run aggregate supply: A- the price level is likely to increase. B- downward pressure on wages should ensue. C- supply will increase to meet the additional demand.

Stocks BWQ and ZER are each currently priced at $100 per share. Over the next year, stock BWQ is expected to generate significant benefits whereas stock ZER is not expected to generate any benefits. There are no carrying costs associated with holding either stock over the next year. Compared with ZER, the one-year forward price of BWQ is most likely: A- lower. B- the same. C- higher.

Suppose that inflation increases due to higher capacity utilization. Such inflation is best described as: A- demand-pull inflation. B- stagflation. C- cost-push inflation.

Suppose the cost of producing tea relative to copper is lower in Tealand than in Copperland. With trade, the copper industry in Copperland would most likely: A- expand. B- contract. C- remain stable.

Suppose we take a random sample of 30 companies in an industry with 200 companies. We calculate the sample mean of the ratio of cash flow to total debt for the prior year. We find that this ratio is 23 percent. Subsequently, we learn that the population cash flow to total debt ratio (taking account of all 200 companies) is 26 percent. What is the explanation for the discrepancy between the sample mean of 23 percent and the population mean of 26 percent? A- Sampling error. B- Bias. C- A lack of consistency.

Technical analysis relies most importantly on: A- price and volume data. B- accurate financial statements. C- fundamental analysis to confirm conclusions.

Technical analysts following Elliott Wave Theory most likely use Fibonacci numbers to determine the expected: A- size of future waves in a market trend. B- correlation between waves and technical indicators. C- number of waves in a grand supercycle.

Text Analytics is appropriate for application to: A- economic trend analysis. B- large, structured datasets. C- public but not private information.

The Austrian economic school attributes the primary cause of the business cycle to: A- misguided government intervention. B- the creative destruction of technological progress. C- sticky price and wage expectations that exaggerate trends.

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.

The GDP deflator is calculated as 100 times the ratio of: A- nominal GDP to real GDP. B- base year prices to current year prices. C- current year nominal GDP to base year nominal GDP.

The Gordon growth model is most appropriate for valuing the common stock of a dividend paying company that is: A- mature and relatively insensitive to economic fluctuations. B- young and just entering the growth phase. C- experiencing growth that is higher than the sustainable growth rate.

The Standard regarding suitability most likely requires that: A- an advisor must analyze an investment's suitability for the client prior to recommending or acting on the investment. B- a member or candidate must decline to carryout an unsolicited transaction that she believes is unsuitable for the client. C- when managing a fund to an index, a manager who is evaluating potential investments must consider their suitability for the fund's shareholders.

The advantages to an investor owning convertible preference shares of a company most likely include: A- less price volatility than the underlying common shares. B- an opportunity to receive additional dividends if the company's profits exceed a pre-specified level. C- preference dividends that are fixed contractual obligations of the company.

The analytical tool that would be most appropriate for an analyst to use to identify the percentage of a company's assets that are liquid is the: A- common-size balance sheet. B- cash ratio. C- current ratio.

The author of a new textbook received a $100,000 advance from the publisher this year. $40,000 of income taxes were paid on the advance when received. The textbook will not be finished until next year. Determine the tax basis of the advance at the end of this year. A- $0. B- $40,000. C- $100,000.

The component of an investment policy statement that defines the investment objectives is most likely to include information about: A- the investor's risk tolerance. B- unique needs and preferences of the investor. C- permitted asset types and use of leverage in the investment account.

The conditional expected value of a random variable is best described as the: A- expected value of a random variable given an event or scenario. B- probability-weighted average of the possible outcomes of the random variable. C- weighted average of the probabilities of an event given all possible scenarios.

The constant growth model requires which of the following? A- g < k. B- g > k. C- g ≠ k.

The contraction phase of the business cycle is least likely accompanied by decreasing: A- unemployment. B- inflation pressure. C- economic output.

The correlation between assets in a two-asset portfolio increases during a market decline. If there is no change in the proportion of each asset held in the portfolio or the expected standard deviation of the individual assets, the volatility of the portfolio is most likely to: A- increase. B- decrease. C- remain the same.

The cost of an intangible asset is most likely to be amortized if the asset has: A- a finite life and was purchased. B- a finite life and was created internally. C- an indefinite life and was acquired in a business combination.

The financial statement that presents a shareholder's residual claim on assets is the: A- balance sheet. B- income statement. C- cash flow statement.

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.

The gain or loss on a sale of a long-lived asset to which the revaluation model has been applied is most likely calculated using sales proceeds less: A- carrying amount. B- carrying amount adjusted for impairment. C- historical cost net of accumulated depreciation.

The income from a financial investment in Country P by a citizen of Country Q is most likely included in: A- Country P's GDP but not its GNP. B- Country Q's GNP and GDP. C- Country P's GDP and GNP.

The industry experience curve shows the cost per unit relative to: A- output. B- age of firms. C- industry life-cycle stage.

The initial measurement of goodwill is most likely affected by: A- an acquisition's purchase price. B- the acquired company's book value. C- the fair value of the acquirer's assets and liabilities.

The interest rate risk of a fixed-rate bond with an embedded call option is best measured by: A- effective duration. B- modified duration. C- Macaulay duration.

The intrinsic value of an asset: A- changes through time as new information is released. B- is the price at which the asset can be bought or sold at a given point in time. C- can be easily determined with a financial calculator, given investor risk preferences.

The investment policy statement is most accurately considered: A- the starting point of the portfolio management process. B- the key intermediate step in the portfolio management process. C- the end product of the portfolio management process.

The least appropriate approach to calculating a country's gross domestic product (GDP) is summing for a given time period: A- the value of all purchases and sales that took place within the country. B- the amount spent on final goods and services produced within the country. C- the income generated in producing all final goods and services produced within the country.

The least likely consequence of a period of hyperinflation is the: A- reduced velocity of money. B- increased supply of money. C- possibility of social unrest.

The least likely limitation to the effectiveness of monetary policy is that central banks cannot: A- accurately determine the neutral rate of interest. B- regulate the willingness of financial institutions to lend. C- control amounts that economic agents deposit into banks.

The marginal revenue per unit sold for a firm doing business under conditions of perfect competition will most likely be: A- equal to average revenue. B- less than average revenue. C- greater than average revenue.

The maturity effect is least likely to hold for a: A- low-coupon, long-term bond trading at a discount. B- zero-coupon bond. C- low-coupon, long-term bond trading at a premium.

The money supply curve is perfectly inelastic because the money: A- supply is independent of interest rates. B- demand schedule is downward-sloping. C- supply is dependent upon interest rates.

The most accurate description of nominal GDP is: A- a measure of total expenditures at current prices. B- the value of goods and services at constant prices. C- a measure to compare one nation's economy to another.

The most important factor in promoting ethical decision making among an investment firm's employees is: A- a strong culture of integrity by the firm's senior management. B- adoption of a code of ethics that clearly defines the firm's ethical principles. C- the investment professional's natural desire to do the right thing.

The most likely company to use a liquidity-based balance sheet presentation is a: A- bank. B- computer manufacturer holding inventories. C- software company with trade receivables and payables.

The most likely motivation for establishing a trading bloc is to: A- increase economic welfare in the member countries. B- increase tariff revenue for the member governments. C- protect domestic industries in the member economies.

The most recent economic data release indicates the following: - capital spending is expanding rapidly, but the growth rate of spending has begun to slow down; and - the rate of hiring has slowed, but the unemployment rate continues to fall. The economy is most likely in which of the following phases? A- Peak B- Late expansion C- Contraction

The most stringent test of a company's liquidity is its: A- cash ratio. B- quick ratio. C- current ratio.

The notional principal of a swap is: A- not exchanged in the case of an interest rate swap. B- a fixed amount whenever it is matched with a loan. C- equal to the amount owed by one swap party to the other.

The planning step of the portfolio management process is least likely to include an assessment of the client's A- securities. B- constraints. C- risk tolerance.

The post-audit is used to: A- improve cash flow forecasts and stimulate management to improve operations and bring results into line with forecasts. B- improve cash flow forecasts and eliminate potentially profitable but risky projects. C- stimulate management to improve operations, bring results into line with forecasts, and eliminate potentially profitable but risky projects.

The usefulness of a forward contract is limited by some problems. Which of the following is most likely one of those problems? A- Once you have entered into a forward contract, it is difficult to exit from the contract. B- Entering into a forward contract requires the long party to deposit an initial amount with the short party. C- If the price of the underlying asset moves adversely from the perspective of the long party, periodic payments must be made to the short party.

The value of a European call option is inversely related to the: A- exercise price. B- time to expiration. C- volatility of the underlying.

The values of a price return index and a total return index consisting of identical equal-weighted dividend-paying equities will be equal: A- only at inception. B- at inception and on rebalancing dates. C- at inception and on reconstitution dates.

The variability of the coupon rate on a Libor-based floating-rate bond is most likely due to: A- periodic resets of the reference rate. B- market-based reassessments of the issuer's creditworthiness. C- changing estimates by the Libor administrator of borrowing capacity.

To the holder of a long position, it is more desirable to own a forward contract than a futures contract when interest rates and futures prices are: A- negatively correlated. B- uncorrelated. C- positively correlated.

Tony Harris is planning to start trading in commodities. He has heard about the use of futures contracts on commodities and is learning more about them. Which of the following is Harris least likely to find associated with a futures contract? A- Existence of counterparty risk. B- Standardized contractual terms. C- Payment of an initial margin to enter into a contract.

Two pharmaceutical companies, Company A and Company B, internally develop drugs and drug analytics software. Company A reports in accordance with IFRS, and Company B reports in accordance with US GAAP. Which of the following statements is most accurate regarding the development costs of the drug patents and software development? A- Company A can capitalize the development costs related to software development if it meets certain criteria. B- Company B can capitalize the development costs related to drug development if it meets certain criteria. C- Both companies must expense all development costs related to these intangible assets.

Under IFRS, a firm that presents a nonstandard financial measure is least likely required to: A- provide the same measure for at least two prior periods. B- explain the reasons for presenting the non standard measure. C- reconcile the non standard measure to a comparable standard measure.

Under IFRS, a loss from the destruction of property in a fire would most likely be classified as: A- continuing operations. B- discontinued operations. C- other comprehensive income.

Under IFRS, reversals of impairments of long-lived assets are allowed: A- for previously recognized impairment losses only. B- if the recoverable amount exceeds the previous carrying amount. C- for assets held for sale only.

Under IFRS, what must be disclosed under the cost model of valuation for investment properties? A- Useful lives B- The method for determining fair value C- Reconciliation between beginning and ending carrying amounts of investment property

Under IFRS, which component of the change in the net pension asset or liability each period is recognized in other comprehensive income? A- Actuarial gains and losses and other remeasurements B- Employees' service costs C- The net interest expense or income accrued on the beginning net pension plan asset or liability.

Under US GAAP, a lessor's reported revenues at lease inception will be highest if the lease is classified as: A- a sales-type lease. B- an operating lease. C- a direct financing lease.

Under US GAAP, for defined-benefit plans, which of the following items is reported as profit and loss? A- Interest expense accrued on the beginning pension obligation in the period incurred. B- Actuarial gains and losses in the current period. C- Past service costs in the period they arise.

Under US GAAP, internally created identifiable intangible assets most likely: A- are expensed and not reported on the balance sheet. B- have their amortization method and useful life reviewed at least annually. C- can be revalued only when there is an active market for the specific intangible asset.

Under US GAAP, property, plant, and equipment is reported on the balance sheet based on: A- a cost model only. B- a revaluation model only. C- either a cost model or a revaluation model.

Under conditions of perfect competition, a company will break even when market price is equal to the minimum point of the: A- average total cost curve. B- average variable cost curve. C- short-run marginal cost curve.

Under put-call-forward parity, which of the following transactions is risk free? A- Short call, long put, long forward contract, long risk-free bond B- Long call, short put, long forward contract, short risk-free bond C- Long call, long put, short forward contract, short risk-free bond

Under the revaluation model for property, plant, and equipment and the fair model for investment property: A- fair value of the asset must be able to be measured reliably. B- net income is affected by all changes in the fair value of the asset. C- net income is never affected if the asset increases in value from its carrying amount.

Under which inventory cost flow assumption does inventory on the balance sheet best approximate its current cost? A- First-in,first-out. B- Weighted average cost. C- Last-in,first-out.

Uses of market indexes do not include serving as a: A- measure of systemic risk. B- basis for new investment products. C- benchmark for evaluating portfolio performance.

Using a common-size income statement to compare a company to its peers, an analyst can determine the company's: A- relative performance. B- size. C- revenue recognition policies.

Using the effective interest rate method, the reported interest expense of a bond issued at a premium will: A- decrease over the term of the bond. B- increase over the term of the bond. C- remain unchanged over the term of the bond.

What happens to a company's weighted average cost of capital (WACC) if the firm's corporate tax rate increases and if the Federal Reserve causes an increase in the risk-free rate, respectively? (Consider the events independently and assume a beta of less than one.) Tax rate increase Increase in risk-free rate A- Decrease WACC Increase WACC B- Decrease WACC Decrease WACC C- Increase WACC Increase WACC

What is a distributed ledger technology (DLT) application suited for physical assets? A- Tokenization B- Cryptocurrencies C- Permissioned networks

What is a major problem with long-term cycle theories? A- The sample size is small. B- The data are usually hard to observe. C- They occur over such a long period that they are difficult to discern.

What is the most significant drawback of a repeat sales index to measure returns to real estate? A- Sample selection bias B- Understatement of volatility C- Reliance on subjective appraisals

What type of risk most likely affects an investor's ability to buy and sell bonds in the desired amounts and at the desired time? A- Market liquidity B- Spread C- Default

When a central bank announces a decrease in its official policy rate, the desired impact is an increase in: A- investment. B- interbank borrowing rates. C- the national currency's value in exchange for other currencies.

When a company issues common stock as part of the conversion of a convertible bond, the cash flow statement will most likely: A- omit the transaction but disclose it in a separate note or supplementary statement. B- omit the transaction without disclosure. C- include the transaction because it materially affects the company's financial position.

When a firm operates under conditions of pure competition, marginal revenue always equals: A- price. B- average cost. C- marginal cost.

When accounting standards require an asset to be expensed immediately but tax rules require the item to be capitalized and amortized, the company will most likely record: A- a deferred tax asset. B- a deferred tax liability. C- no deferred tax asset or liability.

When aggregate real personal income, industrial output, and the S&P 500 Index all increase in a given period, it is most accurate to conclude that a cyclical upturn is: A- occurring. B- about to end. C- about to begin

When analyzing a company that prepares its financial statements according to US GAAP, calculating the ratio of price to tangible book value instead of the ratio of price to book value is most appropriate if the company: A- grows primarily through acquisitions. B- develops its patents and processes internally. C- invests a substantial amount in new capital assets.

When calculating diluted EPS, which of the following securities in the capital structure increases the weighted average number of common shares outstanding without affecting net income available to common shareholders? A- Stock options B- Convertible debt that is dilutive C- Convertible preferred stock that is dilutive

When comparing a US company that uses the last in, first out (LIFO) method of inventory with companies that prepare their financial statements under international financial reporting standards (IFRS), analysts should be aware that according to IFRS, the LIFO method of inventory: A- is never acceptable. B- is always acceptable. C- is acceptable when applied to finished goods inventory only.

When creating a security market index, an index provider must first determine the: A- target market. B- appropriate weighting method. C- number of constituent securities.

When creating a security market index, the target market: A- determines the investment universe. B- is usually a broadly defined asset class. C- determines the number of securities to be included in the index.

When determining the capacity of a borrower to service debt, a credit analyst should begin with an examination of: A- industry structure. B- industry fundamentals. C- company fundamentals.

When issuing debt, a company may use a sinking fund arrangement as a means of reducing: A- credit risk. B- inflation risk. C- interest rate risk.

When preparing a common-sized income statement, the appropriate denominator for converting the reported cost of sales is: A- revenues. B- net income. C- pretax income.

When preparing an income statement, which of the following items would most likely be classified as other comprehensive income? A- A foreign currency translation adjustment B- An unrealized gain on a security held for trading purposes C- A realized gain on a derivative contract not accounted for as a hedge

When screening for potential equity investments based on return on equity, to control risk, an analyst would be most likely to include a criterion that requires: A- positive net income. B- negative net income. C- negative shareholders' equity.

When testing the population mean, the use of a z-statistic is most appropriate when the: A- variance is known and the sample is normally distributed. B- variance is unknown and the sample size is small. C- distribution is non-normal and the sample size is small.

When the collateral manager fails pre-specified risk tests, a CDO is: A- deleveraged by reducing the senior bond class. B- restructured to reduce its most expensive funding source. C- liquidated by paying off the bond classes in order of seniority.

When the price of the underlying is below the exercise price, a put option is: A- in-the-money. B- at-the-money. C- out-of-the-money.

When underwriting new corporate bonds, matrix pricing is used to get an estimate of the: A- required yield spread over the benchmark rate. B- market discount rate of other comparable corporate bonds. C- yield-to-maturity on a government bond having a similar time-to-maturity.

Which CFA Institute Standard of Professional Conduct most likely includes a sub-section entitled "Communication with Clients and Prospective Clients"? A- Investment Analysis, Recommendations, and Actions B- Conflicts of Interest C- Duties to Clients

Which action is a central bank least likely to take if it wants to encourage businesses and households to borrow for investment and consumption purposes? A- Sell long-dated government securities. B- Purchase long-dated government treasuries. C- Purchase mortgage bonds or other securities.

Which commercial mortgage-backed security (CMBS) characteristic causes a CMBS to trade more like a corporate bond than a residential mortgage-backed security (RMBS)? A- Call protection B- Internal credit enhancement C- Debt-service coverage ratio level

Which component of the return on a long futures position is related to differences between spot prices and futures prices? A- Roll yield. B- Price return. C- Collateral yield.

Which curve represents combinations of income and the real interest rate at which planned expenditure equals income? A- The IS curve. B- The LM curve. C- The aggregate demand curve.

Which flow-of-funds indicator is considered bearish for equities? A- A large increase in the number of IPOs. B- Higher-than-average cash balances in mutual funds. C- An upturn in margin debt but one that is still below the long-term average.

Which industry classification system uses a three-tier classification system? A- Russell Global Sectors. B- Industry Classification Benchmark. C- Global Industry Classification Standard.

Which international organization is primarily concerned with providing economic assistance to developing countries? A- World Bank. B- World Trade Organization. C- International Monetary Fund.

Which is the most accurate statement regarding central banks and monetary policy? A- Central bank activities are typically intended to maintain price stability. B- Monetary policies work through the economy via four independent channels. C- Commercial and interbank interest rates move inversely to official interest rates.

Which is the most accurate statement regarding the demand for money? A- Precautionary money demand is directly related to GDP. B- Transactions money demand is inversely related to returns on bonds. C- Speculative demand is inversely related to the perceived risk of other assets.

Which of the factors that determine the intensity of industry competition is most likely to be affected by the presence of significant economies of scale? A- Threat of entry. B- Threat of substitutes. C- Power of suppliers.

Which of the following actions on the part of a central bank is most consistent with increasing the quantity of money? A- Purchasing securities on the open market B- Increasing the central bank policy rate C- Increasing reserve requirements

Which of the following amortization methods is most likely to evenly distribute the cost of an intangible asset over its useful life? A- Straight-line method. B- Units-of-production method. C- Double-declining balance method.

Which of the following asset classes has historically had the highest returns and standard deviation? A- Small-cap stocks. B- Large-cap stocks. C- Long-term corporate bonds.

Which of the following best describes a convertible bond's conversion premium? A- Bond price minus conversion value B- Par value divided by conversion price C- Current share price multiplied by conversion ratio

Which of the following best describes a reason a company would acquire the use of equipment through an operating lease rather than by purchase? A- To take advantage of less costly financing B- To obtain preferential tax treatment for the lease payments compared with ownership C- To increase cash from operations

Which of the following best describes a use of the balance sheet? A company's balance sheet: A- provides detail on its overall financial position at the end of a period. B- includes detail on its cash receipts and payments made during a period. C-specifies how much revenue it generated during a period.

Which of the following best describes an opportunity for management to issue low-quality financial reports? A- Ineffective board of directors B- Pressure to achieve some performance level C- Corporate concerns about financing in the future

Which of the following best describes the book value of equity? A- Management should attempt to maximize book value of equity. B- Book value of equity decreases when retained earnings increase. C- Book value of equity reflects investors' perceptions of the firm's future.

Which of the following best describes the underlying rationale for a written investment policy statement (IPS)? A- A written IPS communicates a plan for trying to achieve investment success. B- A written IPS provides investment managers with a ready defense against client lawsuits. C- A written IPS allows investment managers to instruct clients about the proper use and purpose of investments.

Which of the following best identifies an internal trait that may lead to poor ethical decision making? A- Overconfidence B- Loyalty to employer C- Promise of money or prestige

Which of the following best outlines the minimally acceptable behaviors expected of a member belonging to a societal group? A- Standards of conduct B- Code of ethics C- A firm's employee handbook

Which of the following categories completely represents an ethical principle of CFA Institute as outlined in the Standards of Practice Handbook? A- Individual professionalism B- Responsibilities to clients and employers C- Ethics involved in investment analysis and recommendations

Which of the following characteristics of a residential mortgage loan would best protect the lender from a strategic default by the borrower? A- Recourse B- A prepayment option C- Interest-only payments

Which of the following characteristics of an investment study most likely indicates time-period bias? A- The study is based on a short time-series. B- Information not available on the test date is used. C- A structural change occurred prior to the start of the study's time series.

Which of the following conditions is most likely to facilitate shareholder activism? A- Cross-shareholdings B- Cumulative voting C- Staggered boards

Which of the following expense recognition choices is least consistent with conservative accounting of reported net income? A- Recognizing expenses later rather than earlier. B- Reflecting lower warranty expenses due to improved product quality. C- Estimating lower uncollectible accounts due to stricter credit policies.

Which of the following factors would be least likely to shift the aggregate demand curve? A- The price level increases. B- The federal deficit expands. C- Expected inflation decreases.

Which of the following features is most likely to be found in a well-structured executive compensation plan? A- Links to factors that drive overall corporate performance B- Reasonably consistent total compensation from year to year C- Higher total remuneration relative to peer companies with comparable performance

Which of the following financial products is least likely to have a capital gain distribution? A- Exchange traded funds. B- Open-end mutual funds. C- Closed-end mutual funds.

Which of the following firms would most appropriately be valued using an asset-based model? A- An energy exploration firm in financial distress that owns drilling rights for offshore areas. B- A paper firm located in a country that is experiencing high inflation. C- A software firm that invests heavily in research and development and frequently introduces new products.

Which of the following forms of pooled investments is subject to the least amount of regulation? A- Hedge funds. B- Exchange traded funds. C- Closed-end mutual funds.

Which of the following groups best illustrates a population? A- The 500 companies in the S&P 500 Index B- The NYSE-listed stocks in the Dow Jones Industrial Average C- The Lehman Aggregate Bond Index as a representation of the US bond market

Which of the following index weighting methods requires an adjustment to the divisor after a stock split? A- Price weighting. B- Fundamental weighting. C- Market-capitalization weighting.

Which of the following institutions will on average have the greatest need for liquidity? A- Banks. B- Investment companies. C- Non-life insurance companies.

Which of the following is a Type I error? A- Rejecting a true null hypothesis B- Rejecting a false null hypothesis C- Failing to reject a false null hypothesis

Which of the following is generally true of the head and shoulders pattern? A- Volume is important in interpreting the data. B- The neckline, once breached, becomes a support level. C- Head and shoulders patterns are generally followed by an uptrend in the security's price.

Which of the following is least likely a condition of a binomial experiment? A- There are only two trials. B- The trials are independent. C- If p is the probability of success, and q is the probability of failure, then p+q=1.

Which of the following is least likely a phase in an ethical decision-making framework? A- Multiple iterations of analysis B- Reflection on the outcome versus what was anticipated C- Consideration of situational influences, additional guidance, and alternative actions

Which of the following is least likely an advantage to the lessee in a leasing agreement? A- High residual value B- Low down payment required C- Lower financing costs than purchasing the asset

Which of the following is least likely an assumption of the capital asset pricing model (CAPM)? A- Investors are different only with respect to their unique holding periods. B- An investor can invest as much as he or she desires in any asset. C- Security prices are not affected by investor trades.

Which of the following is least likely an element of an industry strategic analysis? A- Market correlations. B- Demographic influences. C- Influence of industry capacity on pricing.

Which of the following is least likely to be a motivation to overreport earnings? A- Reduce tax obligations. B- Meet analyst expectations. C- Remain in compliance with bond covenants.

Which of the following is least likely to be caused by a shift in aggregate demand? A- Stagflation. B- A recessionary gap. C- An inflationary gap.

Which of the following is least likely to be considered an alternative investment? A- Real estate B- Commodities C- Long-only equity funds

Which of the following is most appropriate for measuring a bond's sensitivity to shaping risk? A- key rate duration B- effective duration C- modified duration

Which of the following is most appropriately termed a financial risk? A. Credit risk. B. Solvency risk. C- Settlement risk.

Which of the following is most likely a characteristic of real assets? A- Substantial management costs B- High liquidity C- Homogeneity

Which of the following is most likely a part of the feedback step in the portfolio management process? A- Performance measurement B- Developing the investment policy statement C- Portfolio construction

Which of the following is most likely a reason for using asset-based valuation? A- The analyst is valuing a privately held company. B- The company has a relatively high level of intangible assets. C- The market values of assets and liabilities are different from the balance sheet values.

Which of the following is most likely an example of a negative covenant? A- Dividend payout ratio not to exceed 25% B- Maintain a debt-to-EBITDA ratio of 4.0 or less C- Company must redeem outstanding debt in event of takeover

Which of the following is most likely the underlying of a plain vanilla interest rate swap? A- 180-day Libor B- 10-year US Treasury bond C- Bloomberg Barclay's US Aggregate Bond Index

Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method? A- Net income. B- Cash paid to suppliers. C- Cash received from customers.

Which of the following is most likely to be a destabilizing consequence of speculation using derivatives? A- Increased defaults by speculators and creditors B- Market price swings resulting from arbitrage activities C- The creation of trading strategies that result in asymmetric performance

Which of the following is most likely to be available when conducting hedge fund due diligence? A- The benchmark used by the fund B- Information on systems risk management C- Details of investment strategies and processes

Which of the following is most likely to be considered a potential benefit of accounting conservatism? A- A reduction in litigation costs B- Less biased financial reporting C- An increase in current period reported performance

Which of the following is not a constraint on the financial statements according to the Conceptual Framework? A- Understandability. B- Benefit versus cost. C- Balancing of qualitative characteristics.

Which of the following is not a function of the financial system? A- To regulate arbitrageurs' profits (excess returns). B- To help the economy achieve allocational efficiency. C- To facilitate borrowing by businesses to fund current operations.

Which of the following is not an assumption of technical analysis? A- Security markets are efficient. B- The security under analysis is freely traded. C- Market trends and patterns tend to repeat themselves.

Which of the following is the best reason for an investor to be concerned with the composition of a portfolio? A- Risk reduction. B- Downside risk protection. C- Avoidance of investment disasters.

Which of the following is the correct sequence of events for risk governance and management that focuses on the entire enterprise? Establishing: A- risk tolerance, then risk budgeting, and then risk exposures. B- risk exposures, then risk tolerance, and then risk budgeting. C- risk budgeting, then risk exposures, and then risk tolerance.

Which of the following is the most likely example of a tool of fiscal policy? A- Public financing of a power plant. B- Regulation of the payment system. C- Central bank's purchase of government bonds.

Which of the following market regulations will most likely impede market efficiency? A- Restricting traders' ability to short sell. B- Allowing unrestricted foreign investor trading. C- Penalizing investors who trade with nonpublic information.

Which of the following may be controlled by an investor? A- Risk B- Raw returns C- Risk-adjusted returns

Which of the following money market yields is a bond-equivalent yield? A- Add-on yield based on a 365-day year. B- Discount yield based on a 360-day year. C- Discount yield based on a 365-day year.

Which of the following pairs of risks are most closely related? A- Model risk and tail risk B- Liquidity risk and operational risk C- Credit risk and solvency risk

Which of the following performance measures is most appropriate for an investor who is not fully diversified? A- M-squared. B- Treynor ratio. C- Jensen's alpha.

Which of the following represents a principal-agent conflict between shareholders and management? A- Risk tolerance B- Multiple share classes C- Accounting and reporting practices

Which of the following requirements for members and candidates is one of the six components of the Code of Ethics? A- Maintain and improve their professional competence. B- Do not act or cause others to act on material nonpublic information. C- Distinguish between fact and opinion when presenting investment analysis.

Which of the following return calculating methods is best for evaluating the annualized returns of a buy-and-hold strategy of an investor who has made annual deposits to an account for each of the last five years? A- Geometric mean return. B- Arithmetic mean return. C- Money-weighted return.

Which of the following risks is best described as a financial risk? A- Credit B- Solvency C- Operational

Which of the following situations will most likely motivate managers to inflate reported earnings? A- Possibility of bond covenant violation B- Earnings in excess of analysts' forecasts C- Earnings that are greater than the previous year

Which of the following statements about credit ratings is most accurate? A- Credit ratings can migrate over time. B- Changes in bond credit ratings precede changes in bond prices. C- Credit ratings are focused on expected loss rather than risk of default.

Which of the following statements about international trade is least accurate? If two countries have different opportunity costs of production for two goods, by engaging in trade: A- each country gains by importing the good for which it has a comparative advantage. B- each country can achieve a level of consumption outside its domestic production possibility frontier. C- the low opportunity cost producer of each good will export to the high opportunity cost producer of that good.

Which of the following statements about non-market factors in corporate governance is most accurate? A- Stakeholders can spread information quickly and shape public opinion. B- A civil law system offers better protection of shareholder interests than does a common law system. C- Vendors providing corporate governance services have limited influence on corporate governance practices.

Which of the following statements about the cash flow statement prepared under the direct method is most accurate? A- For users, it is easier to interpret information necessary to assess a company's financial needs and ability to repay obligations. B- For preparers, it is the easier and less costly format to prepare. C- It mirrors the forecasting approach for future income that adjusts for the timing differences between accrual and cash accounting.

Which of the following statements best describes the benefits of international trade? A- Countries gain from exchange and specialization. B- Countries receive lower prices for their exports and pay higher prices for imports. C- Absolute advantage is required for a country to benefit from trade in the long term.

Which of the following statements concerning corporate takeovers is most accurate? A- Staggered board elections are considered an anti-takeover measure. B- A proxy fight refers to a move by management to take away voting rights from an activist shareholder. C- A takeover not supported by management is termed hostile, while a takeover supported by management is termed a tender offer.

Which of the following statements concerning the historical record of alternative investments is most likely correct? A- The exclusion of returns of funds that have been liquidated leads to an upward bias in index performance. B- The use of appraised values instead of market prices leads to an upward bias in volatility. C- The inclusion of previous return data for funds that enter the index leads to a downward bias in index performance.

Which of the following statements concerning the principles underlying the capital budgeting process is most accurate? A- Cash flows should be based on opportunity costs. B- Financing costs should be reflected in a project's incremental cash flows. C- The net income for a project is essential for making a correct capital budgeting decision.

Which of the following statements describes an aspect of margin accounts for futures? A- The maintenance margin is always less than the initial margin. B- The initial margin required is typically at least 10% of the futures price. C- A margin call requires a deposit sufficient to raise the account balance to the maintenance margin.

Which of the following statements explains a characteristic of futures price limits? Price limits: A- help the clearinghouse manage its credit exposure. B- can typically be expanded intra-day by willing traders. C- establish a band around the final trade of the previous day.

Which of the following statements is least accurate in describing a company's market value? A- Management's decisions do not influence the company's market value. B- Increases in book value may not be reflected in the company's market value. C- Market value reflects the collective and differing expectations of investors.

Which of the following statements is most accurate about recessions? A- If severe, the demand for products of defensive companies will eventually be adversely affected. B- Consumers are more likely to defer purchases of products of defensive companies than of cyclical companies. C- Non-cyclical companies tend to underperform cyclical companies.

Which of the following statements is most accurate in describing a company's book value? A- Book value increases when a company retains its net income. B- Book value is usually equal to the company's market value. C- The ultimate goal of management is to maximize book value.

Which of the following statements is most accurate with respect to rebalancing and reconstitution of security market indexes? Equal-weighted indexes require frequent rebalancing. A- A price-weighted index requires rebalancing more than a market- B- capitalization-weighted index. C- Turnover within an index results from a reconstitution but not from rebalancing.

Which of the following statements is most likely correct regarding the spot and forward curves. The spot curve: A- can be calculated from the forward curve, and the forward curve can be calculated from the spot curve. B- can be calculated from the forward curve, but the forward curve cannot be calculated from the spot curve. C- cannot be calculated from the forward curve, but the forward curve can be calculated from the spot curve.

Which of the following statements most accurately defines the market portfolio in capital market theory? The market portfolio consists of all: A- risky assets. B- tradable assets. C- investable assets.

Which of the following statements most accurately describes a key aspect of managing a firm's net daily cash position? A- Analyze cash inflows and outflows to forecast future needs for cash. B- Maximize the firm's cash inflows and minimize its cash outflows. C- Minimize uninvested cash balances because they earn a return of zero.

Which of the following statements most likely describes a situation that would motivate a manager to issue low-quality financial reports? A- The manager's compensation is tied to stock price performance. B- The manager has increased the market share of products significantly. C- The manager has brought the company's profitability to a level higher than competitors.

Which of the following statements most likely reflects one of the six components of the CFA Code of Ethics? Candidates must: A- place the integrity of the investment profession above their own interests. B- promote the viability of the global capital markets for their employer's benefit. C- ignore unprofessional conduct displayed by others within the profession.

Which of the following statements on p-value is correct? A- The p-value is the smallest level of significance at which H0 can be rejected. B- The p-value indicates the probability of making a Type II error. C- The lower the p-value, the weaker the evidence for rejecting the H0.

Which of the following statements regarding ESG implementation methods is most accurate? A- Negative screening is the most commonly applied method. B- Thematic investing considers multiple factors. C- Relative/best-in-class screening excludes industries with unfavorable ESG aspects.

Which of the following statements regarding Macaulay duration is correct? A- For a given coupon rate, Macaulay duration can be lower for a long-term discount bond than for a short-term discount bond. B- For a given time to maturity and yield to maturity, Macaulay duration is lower for a zero-coupon bond than for a low-coupon bond trading at a discount. C- For a given time to maturity and yield to maturity, Macaulay duration is lower for a low-coupon bond trading at a discount than for a high-coupon bond trading at a premium.

Which of the following statements regarding a commodity index is most accurate? A- Commodity index returns differ from the changes in the prices of their underlying commodities. B- Commodity indexes in the same markets will share similar risk and return profiles. C- Commodity indexes commonly use an equal weighting method.

Which of the following statements regarding commodity derivatives is correct? A- The primary commodity derivatives are futures. B- Commodities are subject to a set of well-defined risk factors. C- Commodity traders and financial traders today are distinct groups within the financial world.

Which of the following statements regarding fixed-income indexes is most accurate? A- Liquidity issues make it difficult for investors to easily replicate fixed-income indexes. B- Rebalancing and reconstitution are the only sources of turnover in fixed-income indexes. C- Fixed-income indexes representing the same target market hold similar numbers of bonds.

Which of the following statements regarding the calculation of the enterprise value multiple is most likely correct? A- Operating income may be used instead of EBITDA. B- EBITDA may not be used if company earnings are negative. C- Book value of debt may be used instead of market value of debt.

Which of the following statements regarding the money creation process in fractional reserve banking is correct? A- The reserve requirement is negatively related to the quantity of money created. B- The reserve requirement is positively related to the availability of credit. C- The money multiplier is unaffected by the reserve requirement.

Which of the following statements related to securitization is correct? A- Time tranching addresses the uncertainty of a decline in interest rates. B- Securitizations are rarely structured to include both credit tranching and time tranching. C- Junior and senior bond classes differ in that junior classes can only be paid off at the bond's set maturity.

Which of the following technological developments is most likely to be useful for analyzing Big Data? A- Machine learning. B- High-latency capture. C- The Internet of Things.

Which of the following type of debt obligation most likely protects bondholders when the assets serving as collateral are non-performing? A- Covered bonds B- Collateral trust bonds C- Mortgage-backed securities

Which of the following types of mutual funds most likely places the highest pressure on the portfolio manager to manage liquidity? A- A no-load open-end fund B- A load closed-end fund C- A no-load closed-end fund

Which of the following will cause a company to show a lower amount of amortization of intangible assets in the first year after acquisition? A- A higher residual value. B- A higher amortization rate. C- A shorter useful life.

Which of the following would be included in Canadian GDP for a given year? The market value of: A- wine grown in Canada by US citizens. B- electronics made in Japan and sold in Canada. C- movies produced outside Canada by Canadian film makers.

Which of the following would least likely be an objective of market regulation? A- Reduce burdensome accounting standards. B- Make it easier for investors to evaluate performance. C- Prevent investors from using inside information in securities trading.

Which of these definitions of duration is most relevant to a bond investor? A bond's duration is its: A- price sensitivity to yield changes. B- first derivative of value with respect to its yield. C- half-life.

Which phase in the financial statement analysis framework is most likely to involve producing updated reports and recommendations? A- Follow-up B- Analyze/interpret the processed data C- Develop and communicate conclusions and recommendations

Which policy alternative is most likely to be effective for growing both the public and private sectors? A- Easy fiscal/easy monetary policy. B- Easy fiscal/tight monetary policy. C- Tight fiscal/tight monetary policy.

Which ratio would a company most likely use to measure its ability to meet short-term obligations? A- Current ratio. B- Payables turnover. C- Gross profit margin.

Which scenario is most likely to result in a competitive return to a CDO equity holder? A- The collateral earns a higher yield than the bond classes. B- The senior bond class experiences early principal repayment. C- The debt funding costs are higher than the CDO return.

Which technique most likely increases the cash flow provided by operations? A- Stretching the accounts payable credit period B- Applying all non-cash discount amortization against interest capitalized C- Shifting classification of interest paid from financing to operating cash flows

Which type of equity valuation model is most likely to be preferable when one is comparing similar companies? A- A multiplier model. B- A present value model. C- An asset-based valuation model.

Which type of sovereign bond has the lowest interest rate risk for an investor? A- Floaters B- Coupon bonds C- Discount bonds

Which type of trade restriction would most likely increase domestic government revenue? A- Tariff. B- Import quota. C- Export subsidy.

Why is technical analysis especially useful in the analysis of commodities and currencies? A- Valuation models cannot be used to determine fundamental intrinsic value for these securities. B- Government regulators are more likely to intervene in these markets. C- These types of securities display clearer trends than equities and bonds do.

With regard to forming a company's peer group, which of the following statements is not correct? A- Comments from the management of the company about competitors are generally not used when selecting the peer group. B- The higher the proportion of revenue and operating profit of the peer company derived from business activities similar to the subject company, the more meaningful the comparison. C- Comparing the company's performance measures with those for a potential peer-group company is of limited value when the companies are exposed to different stages of the business cycle.

With regard to the net present value (NPV) profiles of two projects, the crossover rate is best described as the discount rate at which: A- two projects have the same NPV. B- two projects have the same internal rate of return. C- a project's NPV changes from positive to negative.

With respect to Level III sponsored ADRs, which of the following is least likely to be accurate? They: A- have low listing fees. B- are traded on the NYSE, NASDAQ, and AMEX. C- are used to raise equity capital in US markets.

Which of the following is most likely to cause a shift to the right in the aggregate demand curve? A- Boom in the stock market B- Increase in taxes C- Decrease in real estate values

A C is incorrect because a decrease in real estate values decrease household wealth and shifts the aggregate demand to the left.

Which statement regarding fiscal deficits is most accurate? A- Higher government spending may lead to higher interest rates and lower private sector investing. B- Central bank actions that grow the money supply to address deflationary conditions decrease fiscal deficits. C- According to the Ricardian equivalence, deficits have a multiplicative effect on consumer spending.

A Government borrowing may compete with private sector borrowing for investment purposes.

Pierre-Louis Robert just purchased a call option on shares of the Michelin Group. A few days ago he wrote a put option on Michelin shares. The call and put options have the same exercise price, expiration date, and number of shares underlying. Considering both positions, Robert's exposure to the risk of the stock of the Michelin Group is: A- long. B- short. C- neutral.

A Robert's exposure to the risk of the stock of the Michelin Group is long. The exposure as a result of the long call position is long. The exposure as a result of the short put position is also long. Therefore, the combined exposure is long.

A company's profitability over a period of time is best evaluated using the: A- balance sheet. B- income statement. C- cash flow statement.

Total risk equals: A- unique plus diversifiable risk. B- market plus nondiversifiable risk. C- systematic plus unsystematic risk.

A US company that complies with US GAAP would like to exclude some items in determining non-GAAP financial measures, other than EBIT and EBITDA. Which of the following items may be excluded? A- For performance measures, items tagged as infrequent that occurred within the past two years B- Impairment charges for long-lived assets C- For liquidity measures, litigation costs requiring cash settlement

A company's asset beta is 1.2 based on a debt-to-equity ratio (D/E) of 50%. If the company's tax rate increases, the associated equity beta will most likely: A- increase. B- decrease. C- remain unchanged.

A bond portfolio manager is considering three bonds—A, B, and C—for his portfolio. Bond A allows the issuer to call the bond before the stated maturity, Bond B allows the investor to put the bond back to the issuer before the stated maturity, and Bond C contains no embedded options. The bonds are otherwise identical. The manager tells his assistant, "Bond A and Bond B should have larger nominal yield spreads to a US Treasury than Bond C to compensate for their embedded options." Is the manager most likely correct? A- No, Bond A's nominal yield spread should be less than Bond C's B- No, Bond B's nominal yield spread should be less than Bond C's C- Yes

A book publisher requires substantial quantities of paper. The publisher and a paper producer have entered into an agreement for the publisher to buy and the producer to supply a given quantity of paper four months later at a price agreed upon today. This agreement is a: A- futures contract. B- forward contract. C- commodity swap.

A call option is: A- the right to sell at a specific price. B- the right to buy at a specific price. C- an obligation to buy at a certain price.

A central bank's policy goals least likely include: A- price stability. B- minimizing long-term interest rates. C- maximizing the sustainable growth rate of the economy.

A characteristic of negotiable certificates of deposit is: A- they are mostly available in small denominations. B- they can be sold in the open market prior to maturity. C- a penalty is imposed if the depositor withdraws funds prior to maturity.

A client who is a director of a publicly listed corporation is required by law to refrain from trading that company's stock at certain points of the year when disclosure of financial results are pending. In preparing a written investment policy statement (IPS) for this client, this restriction on trading: A- is irrelevant to the IPS. B- should be included in the IPS. C- makes it illegal for the portfolio manager to work with this client.

A company has initiated the process of selling unproductive land, representing 5% of its total assets, and using the proceeds to buy back its common shares. Holding other factors constant, these actions by the company will most likely result in a: A- lower sustainable growth. B- higher return on equity. C- higher operating margin.

A company incurs a capital expenditure that may be amortized over five years for accounting purposes, but over four years for tax purposes. The company will most likely record: A- a deferred tax asset. B- a deferred tax liability. C- no deferred tax asset or liability.

A company is experiencing economies of scale when: A- cost per unit increases as output increases. B- it is operating at a point on the LRAC curve where the slope is negative. C- It is operating beyond the minimum point on the long-run average total cost curve.

A company issues €1 million of bonds at face value. When the bonds are issued, the company will record a: A- cash inflow from investing activities. B- cash inflow from financing activities. C- cash inflow from operating activities.

A company redeems $1,000,000 face value bonds with a carrying value of $990,000. If the call price is 104 the company will: A- reduce bonds payable by $1,000,000. B- recognize a loss on the extinguishment of debt of $50,000. C- recognize a gain on the extinguishment of debt of $10,000.

A company sells a product with a three-year warranty included in the price. According to IFRS, which of the following is the most appropriate accounting treatment for the warranty? A- Fully recognizing the revenue at the time of the sale but waiting until the actual warranty costs are incurred to recognize the expense. B- Fully recognizing the revenue and estimated warranty expense at the time of the sale and updating the expense as indicated by experience over the life of the warranty. C- Deferring all of the revenue and recognizing it over the life of the warranty period.

A company that prepares its financial statements in accordance with International Financial Reporting Standards (IFRS) uses the revaluation model to value land. At the end of the current year, the value of land, newly acquired this year, has increased and will be adjusted on the balance sheet. This land is the only asset in its asset class for revaluation purposes. Which of the following statements is most accurate? In the current period, the revaluation of the land will: A- increase return on sales. B- decrease the debt-to-equity ratio. C- increase return on assets.

A company that provides cruise ship vacations uses term loans to finance the acquisition of new cruise ships. Which of the following is most likely a negative covenant for the loans? The company must: A- ensure the ships are insured. B- seek lender approval to pay dividends. C- maintain a minimum level of working capital.

A company that reports under US GAAP leases assets for its own use and classifies its leases as finance leases. In the first year of a least, how would it most likely report a lease payment on its Statement of Cash Flows? A- The full payment in cash from operations B- The interest portion of the payment in cash from operations C- The full payment in cash from financing activities

A company using IFRS reports its interest payments on long-term debt as a financing activity. If the company reported under US GAAP, the most likely effect would be a: A- higher cash flow from operations. B- higher cash flow from financing activities. C- lower cash flow from investing activities.

A company using the last-in, first-out (LIFO) inventory method reports a year-end LIFO reserve of $85,000, which is $20,000 lower than the prior year. If the company had used first-in, first-out (FIFO) instead of LIFO in that year, its financial statements would most likely have reported: A- a higher cost of goods sold (COGS) but a lower inventory balance. B- both a higher cost of goods sold (COGS) and a higher inventory balance. C- a lower cost of goods sold (COGS) but a higher inventory balance.

A company will shut down production in the short run if total revenue is less than total: A- fixed costs. B- variable costs. C- opportunity costs.

A company wishing to increase earnings in the reporting period may choose to: A- decrease the useful life of depreciable assets. B- lower estimates of uncollectible accounts receivables. C- classify a purchase as an expense rather than a capital expenditure.

A country has a comparative advantage in producing a good if: A- it is able to produce the good at a lower cost than its trading partner. B- its opportunity cost of producing the good is less than that of its trading partner. C- its opportunity cost of producing the good is more than that of its trading partner.

A credit derivative is a derivative contract in which the: A- clearinghouse provides a credit guarantee to both the buyer and the seller. B- seller provides protection to the buyer against the credit risk of a third party. C- the buyer and seller provide a performance bond at initiation of the contract.

A creditor most likely would consider a decrease in which of the following ratios to be positive news? A- Interest coverage (times interest earned). B- Debt-to-total assets. C- Return on assets.

A debt security that is collateralized by a pool of the sovereign debt of several developing countries is most likely: A- a CMBS. B- a CDO. C- a CMO.

A fixed exchange rate regime in which the monetary authority is legally required to hold foreign exchange reserves backing 100% of its domestic currency issuance is best described as: A- dollarization. B- a currency board. C- a monetary union.

A hedge fund holds its excess cash in 90-day commercial paper and negotiable certificates of deposit. The cash management policy of the hedge fund is best described as using: A- capital market instruments. B- money market instruments. C- intermediate-term debt instruments.

A least likely reason for investors to include commodity derivatives in their investment portfolios is: A- commodity-related stocks' positive correlation with the overall equity market. B- it eliminates the need to understand the physical supply chain and general supply-demand dynamics of a commodity. C- the tendency for commodity prices to be positively correlated with inflation.

A plain vanilla interest rate swap is also known as: A- a basis swap. B- a fixed-for-floating swap. C- an overnight indexed swap.

A pooled estimator is used when testing a hypothesis concerning the: A- equality of the variances of two normally distributed populations. B- difference between the means of two at least approximately normally distributed populations with unknown but assumed equal variances. C- difference between the means of two at least approximately normally distributed populations with unknown and assumed unequal variances.

A portfolio to the right of the market portfolio on the CML is: A- a lending portfolio. B- a borrowing portfolio. C- an inefficient portfolio.

A positive duration gap indicates that a bond investor is currently: A- at risk of lower interest rates. B- at risk of higher interest rates. C- hedged against interest rate risk.

A potential warning sign that a firm is engaging in channel stuffing is an unusual increase in the firm's: A- receivables turnover. B- days of sales outstanding. C- number of days of payables.

According to the International Financial Reporting Standards framework, which of the following qualities of financial information is least likely cited as one of the two fundamental characteristics that make financial information useful? A- Faithful representation B- Accrual accounting C- Relevance

Accounting goodwill is created when an acquisition's purchase price: A- results in a "bargain purchase." B- exceeds the value of acquired net identifiable assets. C- is attributed solely to separately identifiable assets and liabilities.

After writing the Level I CFA exam, Cynthia White goes to internet discussion site CFA Haven to express her frustration. White writes, "CFA Institute is not doing a competent job of evaluating candidates because none of the questions in the June exam touched on Alternative Investments." White most likely violated the Standard related to conduct as a candidate in the CFA program by: A- publicly disputing CFA Institute policies and procedures. B- disclosing subject matter covered or not covered on a CFA exam. C- participating in an internet forum that is directed toward CFA Program participants.

All else being equal, a decrease in which of the following financial metrics would most likely result in a lower return on equity (ROE)? A- The tax rate B- Leverage C- Days of sales outstanding

All else being equal, which of the following depreciation methods is most likely to result in higher operating margins in the later years of an asset's useful life? A- Straight line B- Declining balance C- Units of production

All of the following are current assets except: A- cash. B- goodwill. C- inventories.

An American call option is most likely to be exercised early when: A- the option is deep in the money. B- the underlying asset pays dividends. C- the risk-free interest rate has increased.

An advantage of indirect taxes as a fiscal policy tool is that such taxes: A- have a greater impact on aggregate spending and output than direct government spending. B- can be adjusted almost immediately. C- minimize interference with consumer choices.

An agreement between a company and a labor union that represents most of its employees would be most appropriately considered part of a company's: A- legal infrastructure. B- contractual infrastructure. C- organizational infrastructure.

An agreement with another country to limit the volume of goods and services sold to them is best described as: A- a quota. B- a voluntary export restraint. C- a minimum domestic content rule.

An analyst estimates a value of $45 for a stock with a market price of $50. The analyst is most likely to conclude that a stock is overvalued if: A- few analysts follow the stock and the analyst has less confidence in his model inputs. B- few analysts follow the stock and the analyst is confident in his model inputs. C- many analysts. follow the stock and the analyst is confident in his model inputs.

As the number of assets in an equally-weighted portfolio increases, the contribution of each individual asset's variance to the volatility of the portfolio: A- increases. B- decreases. C- remains the same.

An analyst is attempting to calculate the intrinsic value of a company and has gathered the following company data: EBITDA, total market value, and market value of cash and short-term investments, liabilities, and preferred shares. The analyst is least likely to use: A- a multiplier model. B- a discounted cash flow model. C- an asset-based valuation model.

An analyst is examining the monthly returns for two funds over one year. Both funds' returns are non-normally distributed. To test whether the mean return of one fund is greater than the mean return of the other fund, the analyst can use: A- a parametric test only. B- a nonparametric test only. C- both parametric and nonparametric tests.

An analyst observes that stock markets usually demonstrate return distributions concentrated to the right with a higher frequency of negative deviation from the mean. This feature is most likely known as: A- positive skewness. B- negative skewness. C- kurtosis.

An analyst who describes a fixed-income security as being a structured finance instrument is classifying the security by: A- credit quality. B- type of issuer. C- taxable status.

An auditor determines that a company's financial statements are prepared in accordance with applicable accounting standards except with respect to inventory reporting. This exception is most likely to result in an audit opinion that is: A- adverse. B- qualified. C- unqualified.

An economist expects the following: - The decline in the unemployment rate will result in higher revenues for home retailers. - A tighter labor market will put upward pressure on wages, compelling home retailers to raise prices. Which type of inflation best corresponds to the economist's expectations? A- Stagflation B- Cost-push inflation C- Demand-pull inflation

An equity analyst is forecasting next year's net profit margin of a heavy equipment manufacturing firm by using the average net profit margin over the past three years. In making his profit projection, he identifies the following three items: 1- The company reported losses from discontinued operations in each of the past three years. 2- The most recent year's tax rate was only half of the prior two years' rate as a result of a fiscal stimulus. 3- The company reported gains on the sale of investments in each of the past three years. Which of the following statements about the preparation of the forecast is most accurate? The analyst would: A- use the most recent tax rate because it is the best predictor of future tax rates. B- exclude the gains on the sale from investments because the company is a manufacturing firm. C- include the losses from discontinued operations because they appear to be an ongoing feature for this company.

An independent audit report is most likely to provide: A- absolute assurance about the accuracy of the financial statements. B- reasonable assurance that the financial statements are fairly presented. C- a qualified opinion with respect to the transparency of the financial statements.

An index of three non-dividend paying stocks is weighted by their market values. One of the index stocks splits 2-for-1 during the year, but no shares are sold. The total return of this index for the year is: A- less than the price return of the index. B- equal to the price return of the index. C- greater than the price return of the index.

An investment fund manager has a finance degree and over 20 years of experience working for a top-ranking asset management firm. Based only on this information, could the investment fund manager most likely claim to be part of a profession? A- Yes, a person working in this industry requires specialized knowledge and skills. B- No. C- Yes, as part of the industry, he is providing a service to others.

An investment portfolio consists of equal weights in two government bonds of different nations. What correlation level will most likely result in the lowest portfolio standard deviation? A- 0.5 B- −0.2 C- 0.0

An investor chooses to invest in a brownfield rather than a greenfield infrastructure project. The investor is most likely motivated by: A- growth opportunities. B- predictable cash flows. C- higher expected returns.

An investor in a private equity fund is concerned that the general partner can receive incentive fees in excess of the agreed-on incentive fees by making distributions over time based on profits earned rather than making distributions only at exit from investments of the fund. Which of the following is most likey to protect the investor from the general partner receiving excess fees? A- A high hurdle rate B- A clawback provision C- A lower capital commitment

An investor is seeking an investment that can take long and short positions, may use multi-strategies, and historically exhibits low correlation with a traditional investment portfolio. The investor's goals will be best satisfied with an investment in: A- real estate. B- a hedge fund. C- a private equity fund.

An investor sells a bond at the quoted price of $98.00. In addition, she receives accrued interest of $4.40. The flat price of the bond is equal to the: A- par value plus accrued interest. B- agreed-on bond price excluding accrued interest. C- accrued interest plus the agreed-on bond price.

An investor with an investment horizon of six years buys a bond with a modified duration of 6.0. This investment has: A- no duration gap. B- a positive duration gap. C- a negative duration gap.

An oil and gas exploration and production company announces that it is offering 30 million shares to the public at $45.50 each. This transaction is most likely a sale in the: A- futures market. B- primary market. C- secondary market.

Analysts should treat deferred tax liabilities that are expected to reverse as: A- equity. B- liabilities. C- neither liabilities nor equity.

Analysts who have estimated returns of an asset to be greater than the expected returns generated by the capital asset pricing model should consider the asset to be: A- overvalued. B- undervalued. C- properly valued.

Angel investing capital is typically provided in which stage of financing? A- Later-stage. B- Formative-stage. C- Mezzanine-stage.

As credit quality for a non-investment-grade bond deteriorates, analysis would most likely increasingly focus on: A- spread risk. B- the recovery rate. C- default probability.

Based on the Conflicts of Interest standard, members and candidates must: A- disclose, as required by law, those conflicts interfering with their professional duties. B- disclose, as appropriate, any benefit paid to others for the recommendation of products. C- seek employer approval before prioritizing their investment transactions over those clients.

Based on the binomial model, an increase in the actual probability of an upward move in the underlying will result in the option price: A- decreasing. B- remaining the same. C- increasing.

Bias in revenue recognition would least likely be suspected if: A- the firm engages in barter transactions. B- reported revenue is higher than the previous quarter. C- revenue is recognized before goods are shipped to customers.

Both monetary and fiscal policy are used to: A- balance the budget. B- achieve economic targets. C- redistribute income and wealth.

Brandon Wiene is a financial analyst covering the beverage industry. He is evaluating the impact of DEF Beverage's new product line of flavored waters. DEF currently has a debt-to-equity ratio of 0.6. The new product line would be financed with $50 million of debt and $100 million of equity. In estimating the valuation impact of this new product line on DEF's value, Wiene has estimated the equity beta and asset beta of comparable companies. In calculating the equity beta for the product line, Wiene is intending to use DEF's existing capital structure when converting the asset beta into a project beta. Which of the following statements is correct? A- Using DEF's debt-to-equity ratio of 0.6 is appropriate in calculating the new product line's equity beta. B- Using DEF's debt-to-equity ratio of 0.6 is not appropriate, but rather the debt-to-equity ratio of the new product, 0.5, is appropriate to use in calculating the new product line's equity beta. C- Wiene should use the new debt-to-equity ratio of DEF that would result from the additional $50 million debt and $100 million equity in calculating the new product line's equity beta.

By themselves, financial ratios are least likely to be sufficient in determining a company's: A- past performance. B- creditworthiness. C- current financial condition.

Chapmin Corp. is a large domestic services firm with a good credit rating. The source of short-term financing it would most likely use is: A- factoring of receivables. B- issuing commercial paper. C- issuing bankers' acceptances.

Collateralized mortgage obligations (CMOs) are designed to: A- eliminate contraction risk in support tranches. B- distribute prepayment risk to various tranches. C- eliminate extension risk in planned amortization tranches.

Companies most likely have a well-defined supply function when the market structure is: A- oligopoly. B- perfect competition. C- monopolistic competition.

Company A adheres to US GAAP and Company B adheres to IFRS. Which of the following is most likely to be disclosed on the financial statements of both companies? A- Any material income resulting from the liquidation of LIFO inventory B- The amount of inventories recognized as an expense during the period C- The circumstances that led to the reversal of a write down of inventories

Company A owns 60% of Company B. Company A's consolidated income statement most likely includes 100% of Company A's revenues and expenses and what portion of Company B's? A- 0% B- 100% C- 60%

Compared to a company that uses the FIFO method, during periods of rising prices a company that uses the LIFO method will most likely appear more: A- liquid. B- efficient. C- profitable.

Compared to a customs union or a common market, the primary advantage of an economic union is that: A- its members adopt a common currency. B- its members have a common economic policy. C- it removes barriers to imports and exports among its members.

Compared to a passive investment strategy, active management, on average: A- cannot outperform if markets are weak-form efficient. B- can outperform if markets are weak-form efficient but not semi strong-form efficient. C- can outperform if markets are semi strong-form efficient but not strong-form efficient.

Compared to a perfectly competitive industry, in an industry characterized by monopolistic competition: A- both price and quantity are likely to be lower. B- price is likely to be higher and quantity is likely to be lower. C- quantity is likely to be higher and price is likely to be lower.

Compared to complying with laws and regulations, complying with a code of ethics: A- is considered a lower standard. B- often involves more judgment. C- includes compliance with all laws and regulations.

Compared to investing in a single security, diversification provides investors a way to: A- increase the expected rate of return. B- decrease the volatility of returns. C- increase the probability of high returns.

Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be: A- lower. B- higher. C- dependent upon the interaction with accounts payable.

Compared with a company that uses the FIFO method, during a period of rising unit inventory costs, a company using the LIFO method will most likely appear more: A- liquid. B- efficient. C- profitable.

Compared with developed markets bonds, emerging markets bonds most likely: A- offer lower yields. B- exhibit higher risk. C- benefit from lower growth prospects.

Compared with direct investment in infrastructure, publicly traded infrastructure securities are characterized by: A- higher concentration risk. B- more-transparent governance. C- greater control over the infrastructure assets.

Compared with historical simulation, Monte Carlo simulation is most appropriate when: A- probability distributions are unavailable. B- "what if" analysis is required. C- analytical methods are required.

If companies earn economic profits in a perfectly competitive market, over the long run the supply curve will most likely: A- shift to the left. B- shift to the right. C- remain unchanged.

Consider two companies that operate in the same line of business and have the same degree of operating leverage: the Basic Company and the Grundlegend Company. The Basic Company and the Grundlegend Company have, respectively, no debt and 50 percent debt in their capital structure. Which of the following statements is most accurate? Compared to the Basic Company, the Grundlegend Company has: A- a lower sensitivity of net income to changes in unit sales. B- the same sensitivity of operating income to changes in unit sales. C- the same sensitivity of net income to changes in operating income.

Convergence of incomes over time between emerging market countries and developed countries is most likely due to: A- total factor productivity. B- diminishing marginal productivity of capital. C- the exhaustion of non-renewable resources.

Credit yield spreads most likely widen in response to: A- high demand for bonds. B- weak performance of equities. C- strengthening economic conditions.

Currency swaps are: A- rarely used. B- commonly used to manage interest rate risk. C- executed by two parties making a series of interest rate payments in the same currency.

Current economic statistics indicating little change in services inflation, rising residential building permits, and increasing average duration of unemployment are best interpreted as: A- conflicting evidence about the direction of economy. B- evidence that a cyclical upturn is expected to occur in the future. C- evidence that a cyclical downturn is expected to occur in the future.

Decision makers who use a compliance approach are most likely to: A- avoid situational influences. B- oversimplify decision making. C- consider more factors than when using an ethical decision-making approach.

Deflation is most likely to be associated with: A- a shortage of government revenue. B- substantial macroeconomic contraction. C- explicit monetary policy to combat inflation.

Depreciation of a country's currency is most likely to narrow its trade deficit when: A- its imports are greater in value than its exports. B- price elasticity of import demand is greater than one. C- investment increases relative to private and government savings.

Derecognition of a long-lived asset other than by a sale most likely involves: A- spinning off a portion of assets from a cash-generating unit of a company. B- removing the carrying amount of the asset given up, adding a fair value for the asset acquired if an asset is exchanged, and reporting any difference in values. C- recording cash proceeds if an asset is retired or abandoned.

During bankruptcy proceedings of a firm, the priority of claims was not strictly adhered to. Which of the following is the least likely explanation for this outcome? A- Senior creditors compromised. B- The value of secured assets was less than the amount of the claims. C- A judge's order resulted in actual claims not adhering to strict priority of claims.

During periods of rising inventory unit costs, a company using the FIFO method rather than the LIFO method will report a lower: A- current ratio. B- inventory turnover. C- gross profit margin.

During the contraction phase of a business cycle, it is most likely that: A- inflation indicators are stable. B- aggregate economic activity is decreasing. C- investor preference for government securities declines.

During the life of a long-term lease under IFRS, the lessee recognizes: A- interest expense only. B- depreciation expense and interest expense. C- neither depreciation expense nor interest expense.

During the process data phase of financial statement analysis, an analyst will most likely develop a: A- statement of purpose. B- common-size balance sheet. C- statement of cash flows.

Enterprise value is defined as the market value of equity plus: A- the face value of debt minus cash and short-term investments. B- the market value of debt minus cash and short-term investments. C- cash and short-term investments minus the market value of debt.

Enterprise value is most often determined as market capitalization of common equity and preferred stock minus the value of cash equivalents plus the: A- book value of debt. B- market value of debt. C- market value of long-term debt.

Eric's Used Book Store prepares its financial statements in accordance with IFRS. Inventory was purchased for £1 million and later marked down to £550,000. One of the books, however, was later discovered to be a rare collectible item, and the inventory is now worth an estimated £3 million. The inventory is most likely reported on the balance sheet at: A- £550,000. B- £1,000,000. C- £3,000,000.

Ethical conduct is most likely behavior that: A- simply considers both the direct benefit and indirect consequences on others. B- is perceived to be beneficial as per society's ethical expectations. C- conforms to expectations as laid out by laws and regulations.

Examples of the beneficial features of using an ethical decision-making framework least likely includes analyzing: A- the best course of action when alternatives are available. B- the decision maker's perspective of contemplated actions. C- a broader picture from a long-term point of view.

Executive compensation and bonuses are most likely consistent with the interests of shareholders if they are: A- stable overtime. B- aligned with the company's strategy. C- sufficiently high relative to the company's competitors.

Firms and industries are most appropriately classified as cyclical or non-cyclical based on: A- their stock price fluctuations relative to the market. B- the sensitivity of their earnings to the business cycle. C- the volatility of their earnings relative to a peer group.

Fiscal policy is most likely to be expansionary if tax rates: A- and government spending both decrease. B- decrease and government spending increases. C- increase and government spending decreases.

If an underlying asset's price is less than a related option's strike price at expiration, a protective put position on that asset versus a fiduciary call position has a value that is: A- lower. B- the same. C- higher.

Following a sharp increase in the price of energy, the overall price level is most likely to rise in the short run: A- and remain elevated indefinitely unless the central bank tightens. B- but be unchanged in the long run unless the money supply is increased. C- and continue to rise until all prices have increased by the same proportion.

For a European call option with two months until expiration, if the spot price is below the exercise price, the call option will most likely have: A- zero time value. B- positive time value. C- positive exercise value.

For a bond issued at a premium, using the effective interest rate method, the: A- carrying amount increases each year. B- amortization of the premium increases each year. C- premium is evenly amortized over the life of the bond.

For a call option, if the underlying asset's value is less than the option's exercise price, the option is said to be: A- at the money. B- out of the money. C- in the money.

For a company paying preferred dividends, the components needed to compute basic EPS are net income: A- and the weighted average number of common shares outstanding. B- preferred dividends, and the weighted average number of common shares outstanding. C- preferred dividends, additional shares issued if preferred is converted, and the weighted average number of common shares outstanding.

For a company that prepares its financial statements under IFRS, for which of the following assets is it most likely that it could report using the fair value model? A- A building the company owns and uses to house its administrative activities B- A building owned by the company and leased out to tenants C- Houses built by the company for sale to customers

For a continuous random variable X, the probability of any single value of X is: A- one. B- zero. C- determined by the cdf.

For a forward contract on an asset that has no costs or benefits from holding it to have zero value at initiation, the arbitrage-free forward price must equal: A- the expected future spot price. B- the future value of the current spot price. C- the present value of the expected future spot price.

For a lognormal distribution: A- the mean equals the median. B- the probability of a negative outcome is zero. C- the probability of a positive outcome is 50%.

For asset allocation purposes, asset classes should be specified such that correlations of returns are relatively: A- low within each asset class and low among asset classes. B- high within each asset class and low among asset classes. C- low within each asset class and high among asset classes.

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 income into retained earnings. C- They are a component of accumulated other comprehensive income.

Green Brothers, an emerging market fund manager, has two of its subsidiaries simultaneously buy and sell emerging market stocks. In its marketing literature, Green Brothers cites the overall emerging market volume as evidence of the market's liquidity. As a result of its actions, more investors participate in the emerging markets fund. Green Brothers most likely: A- did not violate the Code and Standards. B- violated the Standard regarding market manipulation. C- violated the Standard regarding performance presentation.

Higher credit risk is indicated by a higher: A- FFO/debt ratio. B- debt/EBITDAratio. C. EBITDA/interest expense ratio.

If a commodity's forward curve is in contango, the component of a commodities futures return most likely to reflect this is: A- spot prices. B- the roll yield. C- the collateral yield.

If a company purchases, at a premium, bonds that it expects to hold until maturity, they are most likely measured on the balance sheet at: A- historical cost. B- amortized cost. C- fair value

If a company uses a non-GAAP financial measure in an SEC filing, then the company must: A- give more prominence to the non-GAAP measure if it is used in earnings releases. B- provide a reconciliation of the non-GAAP measure and equivalent GAAP measure. C- exclude charges requiring cash settlement from any non-GAAP liquidity measures.

If a default occurs in a non-recourse commercial mortgage-backed security (CMBS), the lender will most likely: A- recover prepayment penalty points paid by the borrower to offset losses. B- use only the proceeds received from the sale of the property to recover losses. C- initiate a claim against the borrower for any shortfall resulting from the sale of the property.

If a government budget deficit increases, net exports must: A- increase, or the excess of private saving over private investment must decrease. B- decrease, or the excess of private saving over private investment must increase. C- decrease, or the excess of private saving over private investment must decrease.

If a market is semi-strong-form efficient, the risk-adjusted returns of a passively managed portfolio relative to an actively managed portfolio are most likely: A- lower. B- higher. C- the same.

If a mortgage borrower makes prepayments without penalty to take advantage of falling interest rates, the lender will most likely experience: A- extension risk. B- contraction risk. C- yield maintenance.

If a paired comparison test of mean differences supports rejecting the null hypothesis, then the: A- independence of the samples is statistically significant. B- standard error of the mean differences is low relative to the sample mean difference. C- difference in means is not statistically significant.

If a particular accounting choice is considered aggressive in nature, then the financial performance for the reporting period would most likely: A- be neutral. B- exhibit an upward bias. C- exhibit a downward bias.

If a stock's relative strength ratio increases, the stock is: A- increasing in price. B- outperforming its benchmark. C- increasing on high volume or decreasing on low volume.

If the income elasticity of demand for a product is -0.6, a: A- 1% increase in income will result in a 0.6% increase in demand. B- 1% increase in income will result in a 0.6% decrease in demand. C- 0.6% increase in income will result in a 1% decrease in demand.

If wages were automatically adjusted for changes in the price level, the short-run aggregate supply curve would most likely be: A- flatter. B- steeper. C- unchanged.

If you are characterizing clients, family, colleagues, and market participants and the duties owed to them, you are most likely in which phase of an ethical decision-making framework? A- Decide B- Identify C- Consider

In 1938, R. N. Elliott proposed a theory that equity markets move: A- in stochastic waves. B- in cycles following Fibonacci ratios. C- in waves dependent on other securities.

In Elliott Wave Theory, Wave 2 commonly exhibits a pattern best described as a(n): A- basing pattern consisting of five smaller waves. B- Fibonacci ratio percentage retracement composed of three smaller waves. C- uptrend moving above the high of Wave 1 and consisting of five smaller waves.

In a mortgage pass-through security, the pass-through rate: A- is adjusted as market rates rise or fall. B- adjusts the rate on the underlying pool of mortgages by a servicing fee. C- is equal to the mortgage rate on the underlying pool of mortgages.

In a period of declining inventory unit costs and constant or increasing inventory quantities, which inventory method is most likely to result in a higher debt-to-equity ratio? A- LIFO B- FIFO C- Weighted average cost

In a production function model of economic output, total factor productivity represents the output growth that can be accounted for by: A- capital growth but not labor growth. B- neither labor growth nor capital growth. C- the combined effects of labor growth and capital growth.

In a recession, companies are most likely to adjust their stock of physical capital by: A- selling it at fire sale prices. B- not maintaining equipment. C- quickly canceling orders for new construction equipment.

In a repurchase agreement, the percentage difference between the repurchase price and the amount borrowed is most accurately described as: A- the haircut. B.- the repo rate. C- the repo margin.

In a repurchase agreement, the repo margin will be lower the: A- higher the supply of the collateral. B- higher the quality of the collateral. C- lower the demand for the collateral.

In a rising interest rate environment, the effective duration of a putable bond relative to an otherwise identical non-putable bond, will most likely be: A- higher. B- lower. C- the same.

In an industry comprised of three companies, which are small-scale manufacturers of an easily replicable product unprotected by brand recognition or patents, the most representative model of company behavior is: A- oligopoly. B- perfect competition. C- monopolistic competition.

In an informationally efficient capital A- active market managers can generate abnormal profits. B- security prices quickly reflect new information. C- investors react to all information releases rapidly.

In an underwritten offering, the risk that the entire issue may not be sold to the public at the stipulated offering price is borne by the: A- issuer. B- investment bank. C- buyers of the part of the issue that is sold.

In applying the principles of expense recognition, companies should: A- record any estimates of uncollectible amounts as a direct reduction of revenues. B- exclude costs of intangible assets with indefinite useful lives. C- recognize credit losses on customer receivables when defaults occur.

In contrast to contingent claims, forward commitments provide the: A- right to buy or sell the underlying asset in the future. B- obligation to buy or sell the underlying asset in the future. C- promise to provide credit protection in the event of default.

In contrast to contingent claims, forward contracts: A- have their prices chosen by the participants. B- could end in default by either party. C- can be exercised by physical or cash delivery.

In contrast to earnings quality, financial reporting quality most likely pertains to: A- sustainable earnings. B- relevant information. C- adequate return on investment.

In credit analysis, capacity is best described as the: A- quality of management. B- ability of the borrower to make its debt payments on time. C- quality and value of the assets supporting an issuer's indebtedness.

In determining the appropriate asset allocation for a client's investment account, the manager should: A- consider only the investor's risk tolerance. B- incorporate forecasts of future economic conditions. C- consider the investor's risk tolerance and future needs, but not forecasts of market conditions.

In order to determine the capacity of a company, it would be most appropriate to analyze the: A- company's strategy. B- growth prospects of the industry. C- aggressiveness of the company's accounting policies.

In order to minimize the foreign exchange exposure on a euro-denominated receivable due from a German company in 100 days, a British company would most likely initiate a: A- spot transaction. B- forward contract. C- real exchange rate contract.

In providing investment services, robo-advisers are most likely to: A- rely on their cost effectiveness to pursue active strategies. B- offer fairly conservative advice as easily accessible guidance. C- be free from regulation when acting as fully-automated wealth managers.

In recent periods, an investor has made several additions to and withdrawals from her portfolio. The measure that is most appropriate for measuring her investment performance is the: A- holding period return. B- money-weighted rate of return. C- time-weighted rate of return.

In terms of market efficiency, short selling most likely: A- leads to excess volatility, which reduces market efficiency. B- promotes market efficiency by making assets less likely to become overvalued. C- has little effect on market efficiency because short sellers face. the risk of unlimited losses.

In the classification of currency regimes, a currency board system (CBS) most likely differs from a fixed-rate parity system in that: A- a CBS can peg to a basket of currencies but a fixed-rate system cannot. B- the monetary authority within a CBS does not act as a traditional lender of last resort. C- a CBS has a discretionary target level of foreign exchange reserves.

In the context of mortgage-backed securities, a conditional prepayment rate (CPR) of 8% means that approximately 8% of the outstanding mortgage pool balance at the beginning of the year is expected to be prepaid: A- in the current month. B- by the end of the year. C- over the life of the mortgages.

In the neoclassical or Solow growth model, an increase in total factor productivity reflects an increase in: A- returns to scale. B- output for given inputs. C- the sustainable growth rate.

In the statement of cash flows, interest paid by a company is most likely included in: A- either the operating or financing section under US GAAP. B- either the operating or financing section under IFRS. C- only the financing section under both IFRS and US GAAP.

In the year after an impairment charge on a finite-lived identifiable intangible asset, compared to not taking the charge, net income is most likely to be: A- lower. B- higher. C- unaffected.

In theory, money neutrality holds in the long run if: A- the money supply is positively related to the velocity of circulation of money. B- increases in the money supply do not influence output and employment. C- price levels are unaffected by changes in the money supply.

In which market structure(s) can a firm's supply function be described as its marginal cost curve above its average variable cost curve? A- Oligopoly or monopoly. B- Perfect competition only. C- Perfect competition or monopolistic competition.

In which sector would a manufacturer of personal care products be classified? A- Health care. B- Consumer staples. C- Consumer discretionary.

In which type of primary market transaction does an investment bank sell bonds on a commission basis? A- Single-price auction. B- Best-efforts offering. C- Under written offering.

In which type of regional trade agreement are economic policies conducted independently by the member countries, while labor and capital are free to move among member countries? A- Free trade area. B- Common market. C- Economic union.

Industry classification systems from commercial index providers typically classify firms by: A- statistical methods. B- products and services. C- business cycle sensitivity.

Interest payable decreased during a company's fiscal year. Compared with the amount of cash interest payments made, interest expense is most likely: A- the same. B- lower. C- higher.

Interest rate swaps are: A- highly regulated. B- equivalent to a series of forward contracts. C- contracts to exchange one asset for another.

Interim financial reports released by a company are most likely to be: A- monthly. B- unaudited. C- unqualified.

Interim reports most likely: A- are audited. B- are issued semi-annually or quarterly. C- include a full set of financial statements and notes.

International financial reporting standards are currently developed by which entity? A- The IFRS Foundation. B- The International Accounting Standards Board. C- The International Organization of Securities Commissions.

Inventory values under IFRS are recorded at the lower of cost or: A- market. B- net realizable value. C- estimated selling price.

Investors seeking some general protection against a poor economy are most likely to select a: A- deferred coupon bond. B- credit-linked coupon bond. C- payment-in-kind coupon bond.

James Beach is young and has substantial wealth. A significant proportion of his stock portfolio consists of emerging market stocks that offer relatively high expected returns at the cost of relatively high risk. Beach believes that investment in emerging market stocks is appropriate for him given his ability and willingness to take risk. Which of the following labels most appropriately describes Beach? A- Hedger. B- Investor. C- Information-motivated trader.

Jason Schmidt works for a hedge fund and he specializes in finding profit opportunities that are the result of inefficiencies in the market for convertible bonds—bonds that can be converted into a predetermined amount of a company's common stock. Schmidt tries to find convertibles that are priced inefficiently relative to the underlying stock. The trading strategy involves the simultaneous purchase of the convertible bond and the short sale of the underlying common stock. The above process could best be described as: A- hedging. B- arbitrage. C- securitization.

Kamp, Inc., sells specialized bicycle shoes. At year-end, due to a sudden increase in manufacturing costs, the replacement cost per pair of shoes is $55. The original cost is $43, and the current selling price is $50. The normal profit margin is 10% of the selling price, and the selling costs are $3 per pair. Using the lower of cost or market method under U.S. GAAP, which of the following amounts should each pair of shoes be reported on Kamp's year-end balance sheet? A- $42. B- $43. C- $47.

Kate Wilson, CFA, is an equity analyst. Wilson enters two transactions for her personal account. Wilson sells 500 shares of Tibon, Inc., a stock on which her firm currently has a "Buy" recommendation. Wilson buys 200 shares of Hayfield Co. and the following day issues a research report on Hayfield with a "Buy" recommendation. Has Wilson violated the Code and Standards? A- No. B- Yes, both of her actions violate the Code and Standards. C- Yes, but only one of her actions violates the Code and Standards.

MARU S.A. de C.V., a Mexican corporation that follows IFRS, has elected to use the revaluation model for its property, plant, and equipment. One of MARU's machines was purchased for 2,500,000 Mexican pesos (MXN) at the beginning of the fiscal year ended 31 March 2010. As of 31 March 2010, the machine has a fair value of MXN 3,000,000. Should MARU show a profit for the revaluation of the machine? A- Yes. B- No, because this revaluation is recorded directly in equity. C- No, because value increases resulting from revaluation can never be recognized as a profit.

Marginal cost of capital schedules slope upward because raising additional capital: A- incurs flotation costs. B- increases the cost of debt. C- increases the size of a company.

Market competitors are least likely to use advertising as a tool of differentiation in an industry structure identified as: A- monopoly. B- perfect competition. C- monopolistic competition.

Matrix pricing allows investors to estimate market discount rates and prices for bonds: A- with different coupon rates. B- that are not actively traded. C- with different credit quality.

Monetarists are most likely to believe: A- there is a causal relationship running from inflation to money. B- inflation can be affected by changing the money supply growth rate. C- rapid financial innovation in the market increases the effectiveness of monetary policy.

Monetary policy is most likely to fail to achieve its objectives when the economy is: A- growing rapidly. B- experiencing deflation. C- experiencing disinflation.

Money received from customers for products to be delivered in the future is recorded as: A- revenue and an asset. B- an asset and a liability. C- revenue and a liability.

Most derivatives are priced by: A- assuming that the market offers arbitrage opportunities. B- discounting the expected payoff of the derivative at the risk-free rate. C- applying a risk premium to the expected payoff of the derivative and its risk.

Most societies would least likely consider ethical principles to include: A- justice. B- duplicity. C- diligence

Obligations arising from past events that are expected to result in an outflow of economic benefits from an entity are most likely known as: A- expenses. B- liabilities. C- operating activities.

Observed overreactions in markets can be explained by an investor's degree of: A- risk aversion. B- loss aversion. C- confidence in the market.

Once an enterprise's risk tolerance is determined, the role of risk management is to: A- analyze risk drivers. B- align risk exposures with risk appetite. C- identify the extent to which the enterprise is willing to fail in meeting its objectives.

One concern when screening for stocks with low price-to-earnings ratios is that companies with low P/Es may be financially weak. What criterion might an analyst include to avoid inadvertently selecting weak companies? A- Net income less than zero B- Debt-to-total assets ratio below a certain cutoff point C- Current-year sales growth lower than prior-year sales growth

One disadvantage of the Herfindahl-Hirschmann Index is that the index: A- is difficult to compute. B- fails to reflect low barriers to entry. C- fails to reflect the effect of mergers in the industry.

One year ago, the nominal exchange rate for USD/EUR was 1.300. Since then, the real exchange rate has increased by 3%. This most likely implies that: A- the nominal exchange rate is less than USD/EUR 1.235. B- the purchasing power of the euro has increased approximately 3% in terms of U.S. goods. C- inflation in the euro zone was approximately 3% higher than inflation in the United States.

Other things equal, which of the following is most likely to decrease a country's trade deficit? A- Increase its capital account surplus. B- Decrease expenditures relative to income. C- Decrease domestic saving relative to domestic investment.

Over a given period, the price of a commodity falls by 5.0%, and the quantity demanded rises by 7.5%. The price elasticity of demand for the commodity is best described as: A- perfectly elastic. B- elastic. C- inelastic.

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.

Penben Corporation has a defined benefit pension plan. At 31 December, its pension obligation is €10 million and pension assets are €9 million. Under either IFRS or US GAAP, the reporting on the balance sheet would be closest to which of the following? A- €10 million is shown as a liability, and €9 million appears as an asset. B- €1 million is shown as a net pension obligation. C- Pension assets and obligations are not required to be shown on the balance sheet but only disclosed in footnotes.

Portfolios that plot inside the minimum-variance frontier represent: A- efficient portfolios. B- inefficient portfolios. C- unattainable portfolios.

Potential real GDP is least likely to increase as a result of: A- an improvement in technology. B- an increase in the money wage rate. C- an increase in the labor force participation ratio.

Price elasticity of demand for a good will most likely be greater if: A- there are no substitutes for the good. B- consumers consider the good as discretionary. C- consumers spend a small portion of their budget on the good.

Prior to expiration, the lowest value of a European put option is the greater of zero or the: A- exercise price minus the value of the underlying. B- present value of the exercise price minus the value of the underlying. C- value of the underlying minus the present value of the exercise price.

The intrinsic value of an undervalued asset is: A- less than the asset's market value. B- greater than the asset's market value. C- the value at which the asset can currently be bought or sold.

The largest component of returns for a 7-year zero-coupon bond yielding 8% and held to maturity is: A- capital gains. B- interest income. C- reinvestment income.

Private contracts, such as bank loan agreements, are most likely to provide an effective disciplinary mechanism to insure high financial reporting quality because: A- loan covenants require the firm to meet specific financial ratios in order to renew the loan. B- lenders monitor managers and pay close attention to the firm's financial reports. C- loan covenants may allow the lender to recover all or part of their investment if certain financial conditions are triggered.

Private equity and venture capital funds: A- expect that only a small percentage of investments will payoff. B- play an active role in the management of companies. C- restructure companies to increase cashflow

Private equity funds are most likely to use: A- merger arbitrage strategies. B- leveraged buyouts. C- market-neutral strategies.

Providing information about the performance and financial position of companies so that users can make economic decisions best describes the role of: A- auditing. B- financial reporting. C- financial statement analysis.

Q. Which of the following should be used to test the difference between the variances of two normally distributed populations? A- t-test B- F-test C- Paired comparisons test

Quantitative easing, the purchase of government or private securities by the central banks from individuals and/or institutions, is an example of which monetary policy stance? A- Neutral. B- Expansionary. C- Contractionary.

Real GDP is best described as the value of: A- current output measured at current prices. B- current output measured at base-year prices. C- base-year output measured at current prices.

Research has revealed that the performance of professional money managers tends to be: A- equal to the performance of a passive investment strategy. B- inferior to the performance of a passive investment strategy. C- superior to the performance of a passive investment strategy.

Residential mortgage-backed securities issued in the US by government-sponsored enterprises are guaranteed by: A- the full faith and credit of the government. B- the government-sponsored enterprise. C- external credit enhancements.

Risk management in the case of individuals is best described as concerned with: A- hedging risk exposures. B- maximizing utility while bearing a tolerable level of risk. C- maximizing utility while avoiding exposure to undesirable risks.

Roles and objectives of fiscal policy most likely include: A- controlling the money supply to limit inflation. B- adjusting tax rates to influence aggregate demand. C- using government spending to control interest rates.

Sarah Johnson, a portfolio manager, is offered a bonus directly by a client if Johnson meets certain performance goals. To comply with the Standard that governs additional compensation arrangements, Johnson should: A- decline to accept a bonus outside of her compensation from her employer. B- disclose this arrangement to her employer in writing and obtain her employer's permission. C- disclose this arrangement to her employer only if she actually meets the performance goals and receives the bonus.

Shareholders' equity reported on the balance sheet is most likely to differ from the market value of shareholders' equity because: A- historical cost basis is used for all assets and liabilities. B- some factors that affect the generation of future cash flows are excluded. C- shareholders' equity reported on the balance sheet is updated continuously.

Situational influences in decision making will most likely be minimized if: A- strong compliance programs are in place. B- longer-term consequences are considered. C- individuals believe they are truthful and honest.

Specialized knowledge and skills, a commitment to serve others, and a shared code of ethics best characterize a(n): A- vocation. B- profession. C- occupation.

Suppose a bond's price is expected to increase by 5% if its market discount rate decreases by 100 basis points. If the bond's market discount rate increases by 100 basis points, the bond price is most likely to change by: A- 5%. B- less than 5%. C- more than 5%.

Suppose a painting is produced and sold in 2018 for £5,000. The expenses involved in producing the painting amounted to £2,000. According to the sum-of-value-added method of calculating GDP, the value added by the final step of creating the painting was: A- £2,000. B- £3,000. C- £5,000.

Suppose an economy has a real trend rate of 2%. The central bank has set an inflation target of 4.5%. To achieve the target, the central bank has set the policy rate at 6%. Monetary policy is most likely: A- balanced. B- expansionary. C- contractionary.

Tactical asset allocation is best described as: A- attempts to exploit arbitrage possibilities among asset classes. B- the decision to deliberately deviate from the policy portfolio. C- selecting asset classes with the desired exposures to sources of systematic risk in an investment portfolio.

Technical analysts assume that markets are: A- weak-form efficient. B- weak-form inefficient. C- semi-strong-form efficient.

The CFA Institute Professional Conduct Program (PCP) has begun an investigation into Chris Jones, a Level II CFA candidate, and a number of his CFA charterholder colleagues. Jones has access to confidential client records that could be useful in clearing his name and wishes to share this information with the PCP. Which of the following most accurately describes Jones's duties with regard to preservation of confidentiality? A- Sharing the confidential information with the PCP would violate the Standards. B- The Standards encourage, but do not require, that Jones support the PCP investigation into his colleagues. C- Jones may share confidential information about former clients with the PCP but may not share confidential information about current clients.

The Duties to Employers standard states that members and candidates must not: A- accept any gifts that might compromise their independence and objectivity. B- deprive their employer of their skills and abilities as related to their employment. C- accept compensation competing with their employer's interest and with the written consent of all parties involved.

The Gearing Company has an after-tax cost of debt capital of 4 percent, a cost of preferred stock of 8 percent, a cost of equity capital of 10 percent, and a weighted average cost of capital of 7 percent. Gearing intends to maintain its current capital structure as it raises additional capital. In making its capital-budgeting decisions for the average-risk project, the relevant cost of capital is: A- 4 percent. B- 7 percent. C- 8 percent.

The MSCI All Country World Index is best described as a: A- broad market equity index. B- multi-market equity index. C- global sector equity index.

The Standard & Poor's Depositary Receipts (SPDRs) is an exchange-traded fund in the United States that is designed to track the S&P 500 stock market index. The latest price of a share of SPDRs is $290. A trader has just bought call options on shares of SPDRs for a premium of $3 per share. The call options expire in six months and have an exercise price of $305 per share. On the expiration date, the trader will exercise the call options (ignore any transaction costs) if and only if the shares of SPDRs are trading: A- below $305 per share. B- above $305 per share. C- above $308 per share.

The Standard & Poor's Depositary Receipts (SPDRs) is an investment that tracks the S&P 500 stock market index. Purchases and sales of SPDRs during an average trading day are best described as: A- primary market transactions in a pooled investment. B- secondary market transactions in a pooled investment. C- secondary market transactions in an actively managed investment.

The Standards of Practice Handbook provides guidance: A- regarding the penalties incurred as a result of ethical violations. B- to which all CFA Institute members and candidates must adhere. C- through explanatory material and examples intended to be all inclusive.

The Zera Company has borrowed capital by issuing a number of different securities. Which of the following most likely ranks the highest with respect to priority of payments? A- Subordinate loan B- Third lien debt C- Senior unsecured bond

The advantage of participating preferred shares versus non-participating preferred shares is that participating preferred shares can: A- obtain voting rights. B- receive extra dividends. C- be converted into common stock.

The best description of a classified statement of financial position is one that: A- is supported by note disclosures relevant to understanding its components. B- distinguishes between current and non-current assets and liabilities. C- has not been audited.

The bond-equivalent yield for a semi-annual pay bond is most likely: A- equal to the effective annual yield. B- equal to double the semi-annual yield to maturity. C- more than the effective annual yield.

The capital allocation line is a straight line from the risk-free asset through: A- the global maximum-return portfolio. B- the optimal risky portfolio. C- the global minimum-variance portfolio.

The capital market line (CML) is the graph of the risk and return of portfolio combinations consisting of the risk-free asset and: A- any risky portfolio. B- the market portfolio. C- the leveraged portfolio.

The category of persons who would be most likely to be harmed by an increase in the rate of inflation is: A- homeowners with fixed 30-year mortgages. B- retirees relying on a fixed annuity payment. C- workers employed under contracts with escalator clauses.

The cost of equity is equal to the: A- expected market return. B- rate of return required by stockholders. C- cost of retained earnings plus dividends.

The creation of bond classes with a waterfall structure for sharing losses is referred to as: A- time tranching. B- credit tranching. C- overcollateralization.

The daily intraday price performance of a security over a specified period could best be analyzed with which type of chart? A- Line B- Candlestick C- Point and figure

The demand for products from monopolistic competitors is relatively elastic due to: A- high barriers to entry. B- the availability of many close substitutes. C- the availability of many complementary goods.

The discouraged worker category is defined to include people who: A- are overqualified for their job. B- could look for a job but choose not to. C- currently look for work without finding it.

The distinction between investment grade debt and non-investment grade debt is best described by differences in: A- tax status. B- credit quality. C- maturity dates.

The expected loss for a given debt instrument is estimated as the product of default probability and: A- (1 + Recovery rate). B- (1 - Recovery rate). C- 1/(1 + Recovery rate).

The factor that most likely results in corporate credit spreads widening is: A- an improving credit cycle. B- weakening economic conditions. C- a period of high demand for bonds.

The financial systems that are operationally efficient are most likely characterized by: A- security prices that reflect fundamental values. B- liquid markets with low commissions and order price impacts. C- the use of resources where they are most valuable.

The first date on which the purchaser of a stock will not receive a dividend that has been declared is: A- the declaration date. B- the ex-dividend date. C- the holder-of-record date.

The goal of a government that imposes restrictions on foreign capital flows is most likely to: A- stimulate domestic interest rates. B- decrease domestic asset price volatility. C- encourage competition with domestic industries.

The goods and services produced by UK citizens who are working in the United States are most likely included in the: A- GDP of the United Kingdom and GNP of the United States. B- GNP of the United Kingdom and GDP of the United States. C- GNP of the United Kingdom and GNP of the United States.

The height of a bar in a histogram represents the matching data interval's: A- relative frequency. B- absolute frequency. C- cumulative frequency.

The least likely explanation for why fiscal policy cannot stabilize aggregate demand completely is that: A- private sector behavior changes over time. B- policy changes are implemented very quickly. C- fiscal policy focuses more on inflation than on unemployment.

The legal contract that describes the form of the bond, the obligations of the issuer, and the rights of the bondholders can be best described as a bond's: A- covenant. B- indenture. C- debenture.

The level of significance of a hypothesis test is best used to: A- calculate the test statistic. B- define the test's rejection points. C- specify the probability of a Type II error.

The line depicting the total risk and expected return of portfolio combinations of a risk-free asset and any risky asset is the: A- security market line. B- capital allocation line. C- security characteristic line.

The manufacturer of Pow Detergent has developed New Improved Pow with Dirteaters and is considering adding it to its product line. New Improved Pow would sell at a premium price compared to Pow. In order to manufacture New Improved Pow, the firm will need to build a new facility and purchase new equipment. Which of the following is least likely included when calculating the appropriate cash flows for analysis of whether to add New Improved Pow to its product line? A- Expected depreciation on the new facility and equipment for tax purposes. B- Costs of a marketing survey performed last month to decide whether to introduce New Improved Pow. C- Reduced sales of Pow that result from the introduction of New Improved Pow.

The method of ESG integration that does not exclude any sectors but seeks to invest in the companies with the best practices regarding employee rights and environmental sustainability is: A- thematic investing. B- positive screening. C- negative screening.

The most likely argument against high national debt levels is that: A- the debt is owed internally to fellow citizens. B- they create disincentives for economic activity. C- they may finance investment in physical and human capital.

The most likely outcome when both aggregate supply and aggregate demand increase is: A- a rise in inflation. B- higher employment. C- an increase in nominal GDP.

The non-controlling (minority) interest in consolidated subsidiaries is presented on the balance sheet: A- as a long-term liability. B- separately, but as a part of shareholders' equity. C- as a mezzanine item between liabilities and shareholders' equity.

The numerator of the GDP price deflator reflects: A- the value of base year output at current prices. B- the value of current year output at current prices. C- the value of current year output at base year prices.

The portfolio of a risk-free asset and a risky asset has a better risk-return tradeoff than investing in only one asset type because the correlation between the risk-free asset and the risky asset is equal to: A- −1.0. B- 0.0. C- 1.0.

The power of a hypothesis test is: A- equivalent to the level of significance. B- the probability of not making a Type II error. C- unchanged by increasing a small sample size.

The price of a forward contract: A- is the amount paid at initiation. B- is the amount paid at expiration. C- fluctuates over the term of the contract.

The price of an interest rate swap that involves the exchange of a fixed payment for a floating payment is most likely: A- equal to its value at expiration. B- set at initiation and constant over time. C- affected by changes in the floating payment.

The price of an out-of-the-money option is: A- less than its time value. B- equal to its time value. C- greater than its time value.

The primary motivation for issuing collateralized mortgage obligations (CMOs) is to reduce: A- extension risk. B- funding costs. C- contraction risk.

The privatization of an existing hospital is best described as: A- a greenfield investment. B- a brownfield investment. C- an economic infrastructure investment.

The probability of correctly rejecting the null hypothesis is the: A- p-value. B- power of a test. C- level of significance.

The put-call parity relationship for European options must hold because a protective put will have the same payoff as: A- a covered call. B- a fiduciary call. C- an uncovered call.

The rate, interpreted to be the incremental return for extending the time-to-maturity of an investment for an additional time period, is the: A- add-on rate. B- forward rate. C- yield-to-maturity.

The relationship between an investment professional and her clients is predominately based on trust, most likely because the investment professional: A- sells or gives advice related to tangible products and services. B- has specialized knowledge, leading her to have more power. C- has access to information on which to base investment decisions.

The return measure that best allows one to compare asset returns earned over different length time periods is the: A- holding period return. B- annualized return. C- net portfolio return.

The risk that mortgage prepayments will occur more slowly than expected is best characterized as: A- default risk. B- extension risk. C- contraction risk.

The role of financial statement analysis is best described as: A- providing information useful for making investment decisions. B- evaluating a company for the purpose of making economic decisions. C- using financial reports prepared by analysts to make economic decisions.

The section of the investment policy statement (IPS) that provides information about how policy may be executed, including investment constraints, is best described as the: A- Investment Objectives. B- Investment Guidelines. C- Statement of Duties and Responsibilities.

The size of a national debt is most likely to be a concern for policymakers if: A- Ricardian equivalence holds. B- a crowding-out effect occurs. C- debt is used to finance capital growth.

The timing of payouts for property and casualty insurers is unpredictable ("lumpy") in comparison with the timing of payouts for life insurance companies. Therefore, in general, property and casualty insurers have: A- lower liquidity needs than life insurance companies. B- greater liquidity needs than life insurance companies. C- a higher return objective than life insurance companies.

The transmission of a central bank's policy rate action through the economy ultimately affects: A- total demand. B- inflation. C- long-term interest rates.

The two components of credit risk are default probability and: A- spread risk. B- loss severity. C- market liquidity risk.

The two components of credit risk are: A- default risk and yield spread. B- default risk and loss severity. C- loss severity and yield spread.

The type of bond issued by a multilateral agency such as the International Monetary Fund (IMF) is best described as a: A- sovereign bond. B- supranational bond. C- quasi-government bond.

The type of equity voting right that grants one vote for each share of equity owned is referred to as: A- proxy voting. B- statutory voting. C- cumulative voting.

The use of secondary sources of liquidity would most likely be considered: A- a normal part of daily business for a company. B- a signal that a company's financial position is deteriorating. C- a lower-cost source of short-term financing compared to primary sources of liquidity.

The value of a European call option at expiration is the greater of zero or the: A- value of the underlying. B- value of the underlying minus the exercise price. C- exercise price minus the value of the underlying.

The value of a European put option can be either directly or inversely related to the: A- exercise price. B- time to expiration. C- volatility of the underlying.

The value of a call option on a stock is most likely to decrease as a result of: A- an increase in asset price volatility. B- a decrease in the risk-free rate of interest. C- a decrease in the exercise price of the option.

The value of a swap is equal to the present value of the: A- fixed payments from the swap. B- net cash flow payments from the swap. C- underlying at the end of the contract.

The value of a swap typically: A- is non-zero at initiation. B- is obtained through replication. C- does not fluctuate over the life of the contract.

The weak-form EMH asserts that stock prices fully reflect which of the following types of information? A- Market only. B- Market and public. C- Public and private.

To evaluate a project with less risk than the average risk of a company's existing projects, an analyst should discount its cash flows at an interest rate: A- equal to the company's WACC. B- less than the company's WACC. C- greater the company's WACC.

To evaluate the potential effect of an innovative and unique type of business transaction on financial statements, an analyst's best approach is to: A- monitor the actions of standard setters and regulators. B- gain an understanding of the transaction's economic purpose. C- consider the approach taken for "new" transactions that arose in the past.

To properly assess a company's past performance, an analyst requires: A- high earnings quality. B- high financial reporting quality. C- both high earnings quality and high financial reporting quality.

Two analysts estimating the value of a non-convertible, non-callable, perpetual preferred stock with a constant dividend arrive at different estimated values. The most likely reason for the difference is that the analysts used different: A- time horizons. B- required rates of return. C- estimated dividend growth rates.

Two individual investors with different levels of risk aversion will have optimal portfolios that are: A- below the capital allocation line. B- on the capital allocation line. C- above the capital allocation line.

Two of the five competitive forces in the Porter framework are: A- threat of entry and barriers to exit. B- power of suppliers and threat of substitutes. C- rivalry among competitors and power of regulators.

Two years ago, Metcalf Corp. purchased machinery for $800,000. At the end of last year, the machinery had a fair value of $720,000. Assuming Metcalf uses the revaluation model, what amount, if any, is recognized in Metcalf's net income this year if the machinery's fair value is $810,000? A- $0. B- $80,000. C- $90,000.

US generally accepted accounting principles are currently developed by which entity? A- The Securities and Exchange Commission. B- The Financial Accounting Standards Board. C- The Public Company Accounting Oversight Board.

Under IFRS, an impairment loss on a property, plant, and equipment asset is measured as the excess of the carrying amount over the asset's: A- fair value. B- recoverable amount. C- undiscounted expected future cash flows.

Under IFRS, it is most appropriate to include which of the following pension costs of a defined-benefit plan in other comprehensive income? A- Net interest expense accrued on the beginning net pension liability B- Actuarial gains or losses C- Employees service cost

Under US GAAP, which of the following would most likely be reported as an operating item on a manufacturing company's income statement? A- A gain on the sale of non-strategic investments B- An impairment loss on obsolete inventory C- Interest expense on long-term debt

Under which section of a manufacturing company's cash flow statement are the following activities reported? Item 1: Purchases of securities held for trading Item 2: Sales of securities considered cash equivalents A- Both items are investing activities. B- Both items are operating activities. C- Only Item 1 is an investing activity.

Until the committed capital is fully drawn down and invested, the management fee for a private equity fund is based on: A- invested capital. B- committed capital. C- assets under management.

Valuing assets at the amount of cash or equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition most closely describes which measurement of financial statement elements? A- Current cost. B- Historical cost. C- Realizable value.

Wang Securities had a long-term stable debt-to-equity ratio of 0.65. Recent bank borrowing for expansion into South America raised the ratio to 0.75. The increased leverage has what effect on the asset beta and equity beta of the company? A- The asset beta and the equity beta will both rise. B- The asset beta will remain the same and the equity beta will rise. C- The asset beta will remain the same and the equity beta will decline.

What will be the effect on a direct exchange rate quote if the domestic currency appreciates? A- Increase B- Decrease C- No change

When GDP is calculated by the sum-of-value-added method, what is the value of a manufactured product in GDP? A- The sum of the product's value at each stage of production and distribution. B- The sum of the increases in the product's value at each stage of production and distribution. C- The product's retail price less the value added at each stage of production and distribution.

When a bond is priced to sell at a discount, the coupon rate is: A- greater than the market rate of interest. B- less than the market rate of interest. C- equal to the market rate of interest.

When a company buys shares of its own stock to be held in treasury, it records a reduction in: A- both assets and liabilities. B- both assets and shareholders' equity. C- assets and an increase in shareholders' equity.

When an otherwise honest person allows the promise of a bonus to negatively influence her behavior, it is most likely an example of what type of ethical challenge? A- Overconfidence bias B- Situational influence C- Compliance oversimplification

When analyzing investment returns, which of the following statements is correct? A- The geometric mean will exceed the arithmetic mean for a series with non-zero variance. B- The geometric mean measures an investment's compound rate of growth over multiple periods. C- The arithmetic mean accurately estimates an investment's terminal value over multiple periods.

When classified by type of issuer, asset-backed securities are part of the: A- corporate sector. B- structured finance sector. C- government and government-related sector.

When computing net cash flow from operating activities using the indirect method, an addition to net income is most likely to occur when there is a: A- gain on the sale of an asset. B- loss on the retirement of debt. C- decrease in a deferred tax liability.

When considering a portfolio that is optimal for one investor, a second investor with a higher risk aversion would most likely: A- expect a higher variance for the portfolio. B- derive a lower utility from the portfolio. C- have a lower return expectation for the portfolio.

When constructing an asset for sale, directly related borrowing costs are most likely: A- expensed as incurred. B- capitalized as part of inventory. C- capitalized as part of property, plant, and equipment.

When developing forecasts, analysts should most likely: A- develop possibilities relying exclusively on the results of financial analysis. B- use the results of financial analysis, analysis of other information, and judgment. C- aim to develop extremely precise forecasts using the results of financial analysis.

When earnings are increased by deferring research and development (R&D) investments until the next reporting period, this choice is considered: A- non-compliant accounting. B- earnings management as a result of a real action. C- earnings management as a result of an accounting choice.

When evaluating mean differences between two dependent samples, the most appropriate test is a: A- chi-square test. B- paired comparisons test. C- z-test.

When graphically depicting the life-cycle model for an industry as a curve, the variables on the axes are: A- price and time. B- demand and time. C- demand and stage of the life cycle.

When interest rates are constant, futures prices are most likely: A- less than forward prices. B- equal to forward prices. C- greater than forward prices.

When preparing the cash flow statement, which of the following purchases is the best example of an investing activity? A- Equity securities held for trading purposes B- Equity securities to be held for more than one year C- Liquid securities held for 30 days

When selecting companies for inclusion in a peer group, a company operating in three different business segments would: A- be in only one peer group. B- possibly be in more than one peer group. C- not be included in any peer group.

Where might an analyst look for details covering the full extent of a company's capital resources? A- Balance sheet B- Management discussion and analysis (MD&A) C- Notes to the financial statements

Which attribute would a private equity firm most likely desire when deciding if a company is particularly attractive as a leveraged buyout target? A- Sustainable cash flow B- Efficient management C- Market value exceeds intrinsic value

Which inventory method is least likely to be used under IFRS? A- First in, first out (FIFO). B- Last in, first out (LIFO). C- Weighted average.

Which investment will most likely expose investors to the greatest level of extension risk? A- Shorter-term tranches in a collateralized mortgage obligation structure B- Commercial mortgage-backed securities with a balloon payment C- Planned amortization class tranches in a collateralized mortgage obligation structure

Which is an appropriate method of preparing a common-size cash flow statement? A- Show each item of revenue and expense as a percentage of net revenue. B- Show each line item on the cash flow statement as a percentage of net revenue. C- Show each line item on the cash flow statement as a percentage of total cash outflows.

Which is an example of an activity that may be legal but that CFA Institute considers unethical? A- Making legally required disclosures in marketing materials B- Trading while in possession of material nonpublic information C- Disclosure by an employee of his or her own company's dishonest activity

Which of the following accounting actions would increase stockholders' equity in the current period? A- Using LIFO rather than FIFO accounting for inventory in an inflationary environment. B- Capitalizing, rather than expensing, a payment. C- Increasing the allowance for uncollectible accounts receivable.

Which of the following actions is a required, rather than recommended, action under the Standard regarding diligence and a reasonable basis for a firm's research recommendations? A- Compensate analysts based on a measure of the quality of their research. B- Review the assumptions used and evaluate the objectivity of third-party research reports. C- Have a policy requiring that research reports and recommendations have a basis that can be substantiated as reasonable and adequate.

Which of the following actions is most likely a violation of the Standard on fair dealing? A- A portfolio manager allocates IPO shares to all client accounts, including her brother's fee-based retirement account. B- An investment firm routinely begins trading for its own account immediately after announcing recommendation changes to clients. C- After releasing a general recommendation to all clients, an analyst calls the firm's largest institutional clients to discuss the recommendation in more detail.

Which of the following activities is most likely to be performed as apart of the execution step of the portfolio management process? A. Completion of the investment policy statement. B- Top-down analysis based on macroeconomic conditions. C- Rebalancing the portfolio to the desired asset class exposures.

Which of the following attributes is least likely to be a requirement for the existence of riskless arbitrage? The underlying security: A- can be sold short. B- is a financial asset. C- is relatively liquid.

Which of the following best describes a component of the income statement? A- Amounts that a company owes its vendors for purchases of goods and services. B- Outflows or depletions of assets in the course of a business's activities. C- Obligations from past events that are expected to result in an outflow of economic benefits

Which of the following best describes a fundamental assumption when monetary policy is used to influence the economy? A- Financial markets are efficient. B- Money is not neutral in the short run. C- Official rates do not affect exchange rates.

Which of the following best describes a low-cost competitive strategy?B A- Volume sold is typically modest. B- Managerial incentives promote operational efficiency. C- Success depends heavily on creative marketing and product development.

Which of the following best describes a negative bond covenant? The issuer is: A- required to pay taxes as they come due. B- prohibited from investing in risky projects. C- required to maintain its current lines of business.

Which of the following best describes reporting and disclosure requirements for a company that enters into an operating lease as the lessee? The operating lease obligation is: A- reported as a receivable on the balance sheet. B- disclosed in notes to the financial statements. C- reported as a component of debt on the balance sheet.

Which of the following causes of an increase in return on equity is most likely a positive sign for a firm's equity investors? A- A firm issues debt to repurchase equity. B- Net income is increasing at a faster rate than book value of equity. C- Net income is decreasing at a slower rate than book value of equity.

Which of the following characteristics is least likely to be a benefit associated with using derivatives? A- More effective management of risk B- Payoffs similar to those associated with the underlying C- Greater opportunities to go short compared with the spot market

Which of the following combinations replicates a long derivative position? A- A short derivative and a long asset B- A long asset and a short risk-free bond C- A short derivative and a short risk-free bond

Which of the following derivatives is a forward commitment? A- Stock option. B- Interest rate swap. C- Credit default swap.

Which of the following descriptions of financial reporting is considered to be of the highest quality? A- Within GAAP but with earnings management B- Within GAAP but with biased choices C- Outside GAAP but with conservative choices

Which of the following effects is most likely to occur in a country that increases its openness to international trade? A- Increased prices of consumer goods. B- Greater specialization in domestic output. C- Decreased employment in exporting industries.

Which of the following elements of financial statements is most closely related to measurement of performance? A- Assets. B- Expenses. C- Liabilities.

Which of the following events is most likely an example of nonsystematic risk? A- A decline in interest rates. B- The resignation of chief executive officer. C- An increase in the value of the US dollar.

Which of the following index weighting methods is most likely subject to a value tilt? A- Equal weighting. B- Fundamental weighting. C- Market-capitalization weighting.

Which of the following index weighting methods requires the most frequent rebalancing? A- Price weighting. B- Equal weighting. C- Market-capitalization weighting.

Which of the following indexes of alternative investments is most likely to be calculated from derivatives prices? A- Real estate index. B- Commodity index. C- Hedge fund. index.

Which of the following industries is most likely to be characterized as concentrated with strong pricing power? A- Asset management. B- Alcoholic beverages. C- Household and personal products.

Which of the following items is treated as other comprehensive income under both IFRS and US GAAP? A- Costs of a company's defined benefit post-retirement plans that are recognized in the current period B- Foreign currency translation adjustment from consolidating financials of foreign subsidiaries C- Certain changes in the value of long-lived assets measured using the cost model

Which of the following measures is lowest for a callable bond? A- Macaulay duration. B- Effective duration. C- Modified duration.

Which of the following measures is the most difficult to estimate? A- The cost of debt. B- The cost of equity. C- Investors' required rate of return on debt.

Which of the following measures of income is the sum of wages and benefits, pretax profits, interest income, owners' income from unincorporated businesses, rent, and taxes net of subsidies? A- Personal income. B- National income. C- Disposable income.

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

Which of the following most likely signals that a manufacturing company expects demand for its product to increase? A- Finished goods inventory growth rate higher than the sales growth rate B- Higher unit volumes of work in progress and raw material inventories C- Substantially higher finished goods, with lower raw materials and work-in-process

Which of the following pooled investments is most likely characterized by a few large investments? A- Hedge funds. B- Buyout funds. C- Venture capital funds.

Which of the following products provides protection from inflation? A- Consols B- Linkers C- Floaters

Which of the following provisions is a benefit to the issuer? A- Put provision B- Call provision C- Conversion provision

Which of the following ratios is most likely to be used as a measure of operating performance? A- Cash ratio B- Working capital turnover ratio C- Defensive interval ratio

Which of the following ratios will most likely result in an increase in a company's sustainable growth rate? A- Higher dividend payout B- Higher tax burden C- Lower interest burden

Which of the following risk management strategies is most accurately described as shifting a risk? A- A retail store owner buys a fire insurance policy on the building. B- A farmer takes a short position in a futures contract to deliver wheat. C- A portfolio manager diversifies her investments across different industries.

Which of the following situations represents a motivation, rather than an opportunity, to issue low-quality financial reports? A- Poor internal controls B- Search for a personal bonus C- Inattentive board of directors

Which of the following statements about Macaulay duration is correct? A- A bond's coupon rate and Macaulay duration are positively related. B- A bond's Macaulay duration is inversely related to its yield-to-maturity. C- The Macaulay duration of a zero-coupon bond is less than its time-to-maturity.

Which of the following statements about balance sheets is most accurate? For balance sheets prepared under: A- IFRS, a classified balance sheet must present current assets before non-current assets. B- US GAAP, intangibles must be valued at historical cost. C- IFRS, a commercial real estate company should use a liquidity based presentation.

Which of the following statements about cash flow ratios is most valid? A- Reinvestment ratio measures a firm's ability to acquire assets with investing cash flows. B- Debt payment ratio measures a firm's ability to pay debts with operating cash flows. C- Interest coverage ratio is calculated as operating cash flow divided by interest payments.

Which of the following statements about correlation is least accurate? A- Diversification reduces risk when correlation is less than+1. B- If the correlation coefficient is 0,a zero variance portfolio can be constructed. C- The lower the correlation coefficient, the greater the potential benefits from diversification.

Which of the following statements about covariance and correlation is least accurate? A- A zero covariance implies there is no linear relationship between the returns on two assets. B- If two assets have perfect negative correlation, the variance of returns for a portfolio that consists of these two assets will equal zero. C- The covariance of a 2-stock portfolio is equal to the correlation coefficient times the standard deviation of one stock's returns times the standard deviation of the other stock's returns.

Which of the following statements about distributed ledger technology is most accurate? A- A disadvantage of blockchain is that past records are vulnerable to manipulation B- Tokenization can potentially streamline involving high-value physical assets. C- Only parties who trust each other should carry out transactions on a permissionless network.

Which of the following statements about exchange-traded funds is most correct? A- Exchange-traded funds are not backed by any assets. B- The investment companies that create exchange-traded funds are financial intermediaries. C- The transaction costs of trading shares of exchange-traded funds are substantially greater than the combined costs of trading the underlying assets of the fund.

Which of the following statements about peer groups is most accurate? A- Constructing a peer group for a company follows a standardized process. B- Commercial industry classification systems often provide a starting point for constructing a peer group. C- A peer group is generally composed of all the companies in the most narrowly defined category used by the commercial industry classification system.

Which of the following statements about private equity securities is incorrect? A- They cannot be sold on secondary markets. B- They have market-determined quoted prices. C- They are primarily issued to institutional investors.

A company that is sensitive to the business cycle would most likely: A- not have growth opportunities. B- experience below-average fluctuation in demand. C- sell products that the customer can purchase at a later date if necessary.

Which of the following statements about risk-averse investors is most accurate? A risk- averse investor: A- seeks out the investment with minimum risk, while return is not a major consideration. B- will take additional investment risk if sufficiently compensated for this risk. C- avoids participating in global equity markets.

Which of the following statements about the Standard on misconduct is most accurate? A- Misconduct applies only to a member or candidate's professional activities. B- Neglecting to perform due diligence when required is an example of misconduct. C- A member or candidate commits misconduct by engaging in any illegal activity.

Which of the following statements about the payback period method is least accurate? The payback period: A- provides a rough measure of a project's liquidity. B- considers all cash flows throughout the entire life of a project. C- is the number of years it takes to recover the original cost of the investment.

Which of the following statements best describes an aspect of the Standards of Professional Conduct? Members and candidates are required to: A- ensure any portfolio mandate followed is fair, accurate, and complete. B- promptly disclose changes that might materially affect investment processes. C- have a reasonable and adequate basis for decisions about client confidentiality.

Which of the following statements best describes the costs of international trade? A- Countries without an absolute advantage in producing a good cannot benefit significantly from international trade. B- Resources may need to be allocated into or out of an industry and less-efficient companies may be forced to exit an industry, which in turn may lead to higher unemployment. C- Loss of manufacturing jobs in developed countries as a result of import competition means that developed countries benefit far less than developing countries from trade.

Which of the following statements best describes the effect of finance leases on financial statements? A- A lessee reports the interest portion of the lease payment as operating cash flow under IFRS and financing cash flow under US GAAP. B- The lessor reports a profit on the sale of the leased asset on the income statement in the case of a sales-type lease. C- Balance sheet effects differ based on whether the lease is a direct financing lease or a sales-type lease.

Which of the following statements best describes the payoff from a forward contract? A- The buyer has more to gain going long than the seller has to lose going short. B- The buyer profits if the price of the underlying at expiration exceeds the forward price. C- The gains from owning the underlying versus owning the forward contract are equivalent.

Which of the following statements is correct? A- The appropriate tax rate to use in the adjustment of the before-tax cost of debt to determine the after-tax cost of debt is the average tax rate because interest is deductible against the company's entire taxable income. B- For a given company, the after-tax cost of debt is generally less than both the cost of preferred equity and the cost of common equity. C- For a given company, the investment opportunity schedule is upward sloping because as a company invests more in capital projects, the returns from investing increase.

Which of the following statements is least accurate? The existence and use of money: A- permits individuals to perform economic transactions. B- requires the central bank to control the supply of currency. C- increases the efficiency of transactions compared to a barter system.

Which of the following statements is the most appropriate description of gross domestic product (GDP)? A- The total income earned by all households, firms, and the government whose value can be verified. B- The total amount spent on all final goods and services produced within the economy over a given time period. C- The total market value of resalable and final goods and services produced within the economy over a given time period.

Which of the following statements most accurately describes one difference between private and public equity firms? A- Private equity firms are focused more on short-term results than public firms. B- Private equity firms' regulatory and investor relations operations are less costly than those of public firms. C- Private equity firms are incentivized to be more open with investors about governance and compensation than public firms.

Which of the following statements most likely contributes to the view that derivatives have some role in causing financial crashes? A- Derivatives are the primary means by which leverage and related excessive risk is brought into financial markets. B- Growth in the number of investors willing to speculate in derivatives markets leads to excessive speculative trading. C- Restrictions on derivatives, such as enhanced collateral requirements and credit mitigation measures, in the years leading up to crashes introduce market rigidity.

Which of the following statements regarding balance sheets is correct? A- Equity stated on the balance sheet fairly represents a company's intrinsic value as of the reporting date. B- Important aspects of a company's ability to generate future cash flows are absent from its balance sheet. C- On the reporting date, shareholders' equity is adjusted to account for changes in expectations about future market conditions.

Which of the following statements regarding rebalancing and reconstitution of an index is most accurate? A- Market-capitalization-weighted indexes require frequent rebalancing. B- Reconstitution can dramatically affect prices of both current and prospective constituents. C- Reconstitution is part of index management that reduces the need for rebalancing.

Which of the following statements regarding sector indexes is most accurate? Sector indexes: A- track different economic sectors and cannot be aggregated to represent the equivalent of a broad market index. B- provide a means to determine whether an active investment manager is more successful at stock selection or sector allocation. C- apply a universally agreed upon sector classification system to identify the constituent securities of specific economic sectors, such as consumer goods, energy, finance, health care.

Which of the following statements regarding the characteristics of money is correct? A- Compared to a barter economy, an economy in which money is the medium of exchange has more prices. B- Money as a medium of exchange depends on shared beliefs about its value. C- Money's low value relative to its weight enhances wealth portability.

Which of the following statements regarding the extinguishment of debt is correct? A- After an offsetting adjustment of net income, cash paid to extinguish debt is classified as cash used for operating activities. B- Net income is adjusted to remove any gain or loss on the extinguishment of debt from operating cash flows. C- A gain or loss on the extinguishment of debt is disclosed on the income statement in a separate line item, even if the amount is immaterial.

Which of the following statements related to secondary bond markets is most accurate? A- Newly issued corporate bonds are issued in secondary bond markets. B- Secondary bond markets are where bonds are traded between investors. C- The major participants in secondary bond markets globally are retail investors.

Which of the following statements relating to yield volatility is most accurate? If the term structure of yield volatility is downward sloping, then: A- short-term rates are higher than long-term rates. B- long-term yields are more stable than short-term yields. C- short-term bonds will always experience greater price fluctuation than long-term bonds.

Which of the following techniques is most likely to provide a company with the opportunity to inflate earnings? A- Reductions in the useful lives of fixed assets B- Last-in, first-out (LIFO) liquidation C- Increases to tax asset valuation allowances

Which of the following tests of a hypothesis concerning the population mean is most appropriate? A- A z-test if the population variance is unknown and the sample is small B- A z-test if the population is normally distributed with a known variance C- A t-test if the population is non-normally distributed with unknown variance and a small sample

Which of the following transactions is most likely to affect a company's financial leverage ratio? A- Payment of a 9% stock dividend B- An increase in cash dividends paid C- Completion of a previously announced 1-for-20 reverse stock split

Which of the following transactions is the equivalent of a synthetic long call position? A- Long asset, long put, short call B- Long asset, long put, short bond C- Short asset, long call, long bond

Which of the following types of preferred shares has the most risk for investors? A- Putable shares. B- Callable shares. C- Non-putable, non-callable shares.

Which of the following typical topics in an investment policy statement (IPS) is most closely linked to the client's "distinctive needs"? A- Procedures. B- Investment Guidelines. C- Statement of Duties and Responsibilities.

Which of the following would an analyst most likely be able to determine from a common-size analysis of a company's balance sheet over several periods? A- An increase or decrease in sales. B- An increase or decrease in financial leverage. C- A more efficient or less efficient use of assets.

Which of the following would best explain an increase in receivables turnover? A- The company adopted new credit policies last year and began offering credit to customers with weak credit histories. B- Due to problems with an error in its old credit scoring system, the company had accumulated a substantial amount of uncollectible accounts and wrote off a large amount of its receivables. C- To match the terms offered by its closest competitor, the company adopted new payment terms now requiring net payment within 30 days rather than 15 days, which had been its previous requirement.

Which of the following would most likely represent an inappropriate use of an index? A- As a reflection of market sentiment. B- Comparing a small-cap manager against a broad market. C- Using the CAPM to determine the expected return and beta.

Which of the following would most likely signal that a company may be using aggressive accrual accounting policies to shift current expenses to later periods? Over the last five-year period, the ratio of cash flow to net income has: A- increased each year. B- decreased each year. C- fluctuated from year to year.

Which of the following yield curves is least likely to consist of observed yields in the market? A- Forward yield curve. B- Par bond yield curve. C- Coupon bond yield curve.

Which one of the following is least likely to be an example of a Eurobond? A- A Japanese company issuing euro-denominated bonds to investors domiciled in the United Kingdom B- A UK-based company issuing Japanese yen-denominated bonds to investors domiciled in Japan C- An Australian company issuing US$-denominated bonds to investors domiciled in Japan

Which one of the following statements best describes the semi-strong form of market efficiency? A- Empirical tests examine the historical patterns in security prices. B- Security prices reflect all publicly known and available information. C- Semi-strong-form efficient markets are not necessarily weak-form efficient.

Which role is a central bank least likely to assume? A- Lender of last resort. B- Sole supervisor of banks. C- Supplier of the currency.

Which statement best describes the risk to senior tranche investors in a collateralized debt obligation (CDO)? A- There are no triggers that require the payoff of the principal to investors. B- In default, the manager will not earn a return sufficient to payoff investors. C- Leverage inherent in the CDO transaction results in higher risk.

Which statement is most accurate? A common size income statement: A- restates each line item of the income statement as a percentage of net income. B- allows an analyst to conduct cross-sectional analysis by removing the effect of company size. C- standardizes each line item of the income statement but fails to help an analyst identify differences in companies' strategies.

Which statement regarding fiscal policy is most accurate? A- To raise business capital spending, personal income taxes should be reduced. B- Cyclically adjusted budget deficits are appropriate indicators of fiscal policy. C- An increase in the budget surplus is associated with expansionary fiscal policy.

Which type of valuation model is viewed as having the disadvantage of producing results that may not be comparable across firms? A- Asset-based models. B- Price multiple models. C- Discounted cash flow models.

William Marolf obtains a 5 million EUR mortgage loan from Bank Nederlandse. A year later the principal on the loan is 4 million EUR and Marolf defaults on the loan. Bank Nederlandse forecloses, sells the property for 2.5 million EUR, and is entitled to collect the 1.5 million EUR shortfall, from Marolf. Marolf most likely had a: A- bullet loan. B- recourse loan. C- non-recourse loan.

With regard to capital budgeting, an appropriate estimate of the incremental cash flows from a project is least likely to include: A- externalities. B- interest costs. C- opportunity costs.

With regard to net present value (NPV) profiles, the point at which a profile crosses the vertical axis is best described as: A- the point at which two projects have the same NPV. B- the sum of the undiscounted cash flows from a project. C- a project's internal rate of return when the project's NPV is equal to zero.

With respect to a forward contract, as market conditions change: A- only the price fluctuates. B- only the value fluctuates. C- both the price and the value fluctuate.

With respect to capital market theory, an investor's optimal portfolio is the combination of a risk-free asset and a risky asset with the highest: A- expected return. B- indifference curve. C- capital allocation line slope.

With respect to capital market theory, correctly priced individual assets can be plotted on the: A- capital market line. B- security market line. C- capital allocation line.

With respect to capital market theory, the average beta of all assets in the market is: A- less than 1.0. B- equal to 1.0. C- greater than 1.0.

With respect to capital market theory, which of the following assumptions allows for the existence of the market portfolio? All investors: A- are price takers. B- have homogeneous expectations. C- plan for the same, single holding period.

With respect to conditions that may lead to low-quality financial reporting, ineffective internal controls are best described as a(n): A- motivation. B- opportunity. C- rationalization.

With respect to floating-rate bonds, a reference rate such as the London interbank offered rate (Libor) is most likely used to determine the bond's: A- spread. B- coupon rate. C- frequency of coupon payments.

With respect to mezzanine-stage financing in venture capital investing and mezzanine financing of a leveraged buyout: A- mezzanine-stage financing refers to a type of security but mezzanine financing does not. B- mezzanine financing refers to a type of security but mezzanine-stage financing does not. C- both terms refer to financing by issuance of securities that have both debt and equity characteristics.

With respect to return-generating models, the intercept term of the market model is the asset's estimated: A- beta. B- alpha. C- variance.

With respect to return-generating models, the slope term of the market model is an estimate of the asset's: A- total risk. B- systematic risk. C- nonsystematic risk.

With respect to the capital asset pricing model, the market risk premium is: A- less than the excess market return. B- equal to the excess market return. C- greater than the excess market return.

With respect to the formation of portfolios, which of the following statements is most accurate? A- Portfolios affect risk less than returns. B- Portfolios affect risk more than returns. C- Portfolios affect risk and returns equally.

With respect to the portfolio management process, the execution step most likely includes: A- portfolio monitoring. B- asset allocation. C- developing the investment policy statement.

With respect to the portfolio management process, the rebalancing of a portfolio's composition is most likely to occur in the: A- planning step. B- feedback step. C- execution step.

With respect to the pricing of risk in capital market theory, which of the following statements is most accurate? A- All risk is priced. B- Systematic risk is priced. C- Nonsystematic risk is priced.

With which of the following features of a corporate bond issue does an investor most likely face the risk of redemption prior to maturity? A- Serial bonds. B- Sinking fund. C- Term maturity structure.

Working capital equals the excess of: A- cash over current liabilities. B- current assets over current liabilities. C- shareholders' equity over non-current assets.

You have placed a sell market-on-open order—a market order that would automatically be submitted at the market's open tomorrow and would fill at the market price. Your instruction, to sell the shares at the market open, is a(n): A- execution instruction. B- validity instruction. C- clearing instruction.

You own shares of a company that are currently trading at $30 a share. Your technical analysis of the shares indicates a support level of $27.50. That is, if the price of the shares is going down, it is more likely to stay above this level rather than fall below it. If the price does fall below this level, however, you believe that the price may continue to decline. You have no immediate intent to sell the shares but are concerned about the possibility of a huge loss if the share price declines below the support level. Which of the following types of orders could you place to most appropriately address your concern? A- Short sell order. B- Good-till-cancelled stop sell order. C- Good-till-cancelled stop buy order.

A company's management team is proposing to sell a major division because of low future growth prospects in that industry. To which committee of the board is the proposal most likely to be presented? A- Risk B- Audit C- Investment

After the public announcement of the merger of two firms, an investor makes abnormal returns by going long on the target firm and short on the acquiring firm. This most likely violates which form of market efficiency? A- Semi-strong-form only B- Semi-strong-form and strong-form C- Weak-form and semi-strong-form

B In a semi-strong-form efficient market, prices adjust quickly and accurately to new information. In this case, prices would quickly adjust to the merger announcement, and if the market is a semi-strong-form efficient market, investors acting after the merger announcement would not be able to earn abnormal returns. Therefore, the market is not semi-strong-form efficient. A market that is not semi-strong-form efficient is also not strong-form efficient. Thus, violating the semi-strong-form efficiency also implies violating the strong-form efficiency. However, the market could still be weak-form efficient because past prices are not being used to make abnormal profits. Thus, we cannot say that the weak-form market efficiency has been violated.

Over time, the market share of the dominant company in an oligopolistic market will most likely: A- increase. B- decrease. C- remain the same.

B The dominant company's market share tends to decrease as profits attract entry by other companies.

Under IFRS, income includes increases in economic benefits from: A- increases in liabilities not related to owners' contributions. B- enhancements of assets not related to owners' contributions. C- increases in owners' equity related to owners' contributions.

B Under IFRS, income includes increases in economic benefits from increases in assets, enhancement of assets, and decreases in liabilities.

Collusion is less likely in a market when: A- the product is homogeneous. B- companies have similar market shares. C- the cost structures of companies are similar.

B When companies have similar market shares, competitive forces tend to outweigh the benefits of collusion.

A 10-year, capital-indexed bond linked to the Consumer Price Index (CPI) is issued with a coupon rate of 6% and a par value of 1,000. The bond pays interest semi-annually. During the first six months after the bond's issuance, the CPI increases by 2%. On the first coupon payment date, the bond's: A- coupon rate increases to 8%. B- coupon payment is equal to 40. C- principal amount increases to 1,020.

A European put option on a dividend-paying stock is most likely to increase if there is an increase in: A- carrying costs. B- the risk-free rate. C- dividend payments.

A South African company issues bonds denominated in pound sterling that are sold to investors in the United Kingdom. These bonds can be best described as: A- Eurobonds. B- global bonds. C- foreign bonds.

A automotive manufacturer is most likely classified in which of the following industry sectors? A- Consumer staples B- Industrial durables C- Consumer discretionary

A basket of listed depository receipts, or an exchange-traded fund, would most likely be used for: A- gaining exposure to a single equity. B- hedging exposure to a single equity. C- gaining exposure to multiple equities.

A benefit of distributed ledger technology (DLT) favoring its use by the investment industry is its: A- scalability of underlying systems. B- ease of integration with existing systems. C- streamlining of current post-trade processes.

A benefit of securitization is the: A- reduction in disintermediation. B- simplification of debt obligations. C- creation of tradable securities with greater liquidity than the original loans.

A benefit of using the direct method rather than the indirect method when reporting operating cash flows is that the direct method: A- mirrors a forecasting approach. B- is easier and less costly. C- provides specific information on the sources of operating cash flows.

A bond issued by a local government authority, typically without an explicit funding commitment from the national government, is most likely classified as a: A- sovereign bond. B- quasi-government bond C- non-sovereign government bond.

A bond market in which a communications network matches buy and sell orders initiated from various locations is best described as an: A- organized exchange. B- open market operation. C- over-the-counter market.

A bond that is characterized by a fixed periodic payment schedule that reduces the bond's outstanding principal amount to zero by the maturity date is best described as a: A- bullet bond. B- plain vanilla bond. C- fully amortized bond.

A candlestick chart is similar to a bar chart except that the candlestick chart: A- represents upward movements in price with X's. B- also graphically shows the range of the period's highs and lows. C- has a body that is light or dark depending on whether the security closed higher or lower than its open.

A cell phone manufacturer has switched to high-margin premium-priced products with the most innovative features as part of its product differentiation strategy. Which of the following other changes is most consistent with this strategy? A- An increase in inventory levels B- A decrease in research and development expenditures C- An increase in advertising expenditures

A central bank's repeated open market purchases of government bonds: A- decreases the money supply. B- is prohibited in most countries. C- is consistent with an expansionary monetary policy.

A classified balance sheet shows assets separately classified as either: A- liquid or non-liquid. B- tangible or intangible. C- current or non-current.

A client exhibits an above-average willingness to take risk but a below-average ability to take risk. When assigning an overall risk tolerance, the investment adviser is most likely to assess the client's overall risk tolerance as: A- above average. B- average. C- below average.

A code of ethics: A- is a personal view of acceptable behavior. B- encompasses current "best practices." C- specifies a minimum level of acceptable conduct.

A company chooses to change an accounting policy. This change requires that, if practical, the company restate its financial statements for: A- all prior periods. B- current and future periods. C- prior periods shown in a report.

A company is evaluating the likely effects on its share price of declaring a 50% stock dividend or a 3-for-2 stock split. Other things equal, which of these will result in a lower share price? A- 3-for-2 stock split. B- 50% stock dividend. C- Both should have the same effect.

A company is experiencing a period of strong financial performance. In order to increase the likelihood of exceeding analysts' earnings forecasts in the next reporting period, the company would most likely undertake accounting choices for the period under review that: A- inflate reported revenue. B- delay expense recognition. C- accelerate expense recognition.

A company is most likely to: A- use a fair value model for some investment property and a cost model for other investment property. B- change from the fair value model when transactions on comparable properties become less frequent. C- change from the fair value model when the company transfers investment property to property, plant, and equipment.

A company purchases a piece of equipment for €1,500. The equipment is expected to have a useful life of five years and no residual value. In the first year of use, the units of production are expected to be 15% of the equipment's lifetime production capacity and the equipment is expected to generate €1,500 of revenue and incur €500 of cash expenses. The depreciation method yielding the lowest operating profit on the equipment in the first year of use is: A- straight line. B- units of production. C- double-declining balance.

A company recently engaged in a non-cash transaction that significantly affected its property, plant, and equipment. The transaction is: A- reported under the investing section of the cash flow statement. B- reported differently in cash flow from operations under the direct and indirect methods. C- disclosed as a separate note or in a supplementary schedule to the cash flow statement.

A company's operations analyst is evaluating a plant expansion project that is likely to be financed in part by issuing new common equity. Flotation costs are expected to be 4% of the amount of new equity capital raised. The most appropriate way for the analyst to treat the flotation costs is to: A- ignore them, because flotation costs for common equity are likely to be nonmaterial. B- estimate the cost of equity capital. based on a share price 4% less than the current price. C- determine the flotation cost attributable to this project and treat it. as part of the project's initial cash outflow.

A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be: A- reported as a $1 million investing cash inflow and outflow. B- reported as a $1 million financing cash outflow and inflow. C- reported as supplementary information to the cash flow statement.

A core objective of the International Organization of Securities Commissions is to: A- eliminate systemic risk. B- protect users of financial statements. C- ensure that markets are fair, efficient, and transparent.

A corporate manager pursuing a low-cost strategy will most likely: A- engage in offering products of unique quality or type B- have strong market research teams for product development and marketing. C- invest in productivity-improving capital equipment.

A country that targets a stable exchange rate with another country's currency least likely: A- accepts the inflation rate of the other country. B- will sell its currency if its foreign exchange value rises. C- must also match the money supply growth rate of the other country.

A country with a persistent trade surplus is being pressured to let its currency appreciate. Which of the following best describes the adjustment that must occur if currency appreciation is to be effective in reducing the trade surplus? A- Domestic investment must decline relative to saving. B- Foreigners must increase investment relative to saving. C- Global capital flows must shift toward the domestic market.

A current Code of Ethics principle reads in full, "Promote the integrity: A- and viability of the global capital markets." B- of and uphold the rules governing capital markets." C- and viability of the global capital markets for the ultimate benefit of society."

A custom agreement to purchase a specific T-bond next Thursday for $1,000 is: A- an option. B- a futures contract. C- a forward commitment.

A cyclical company is most likely to: A- have low operating leverage. B- sell relatively inexpensive products. C- experience wider-than-average fluctuations in demand.

A daily bar chart provides: A- a logarithmically scaled horizontal axis. B- a horizontal axis that represents changes in price. C- high and low prices during the day and the day's opening and closing prices.

A decrease in a country's total imports is most likely caused by: A- an increase in the pace of domestic GDP growth. B- a cyclical downturn in the economies of primary trading partners. C- persistent currency depreciation relative to primary trading partners.

A decrease in the price of a good will most likely be reflected in a: A- change in the intercept of the demand curve. B- change in the slope of the demand curve. C- downward movement along the demand curve.

A decrease in the risk-free rate of interest will: A- increase put and call option prices. B- decrease put option prices and increase call option prices. C- increase put option prices and decrease call option prices.

A derivative is best described as a financial instrument that derives its performance by: A- passing through the returns of the underlying. B- replicating the performance of the underlying. C- transforming the performance of the underlying.

A factor associated with the widespread adoption of algorithmic trading is increased: A- market efficiency. B- average trade sizes. C- trading destinations.

A financial analyst is examining whether a country's financial market is well functioning. She finds that the transaction costs in this market are low and trading volumes are high. She concludes that the market is quite liquid. In such a market: A- traders will find it hard to make use of their information. B- traders will find it easy to trade and their trading will make the market less informationally efficient. C- traders will find it easy to trade and their trading will make the market more informationally efficient.

A firm is operating beyond minimum efficient scale in a perfectly competitive industry. To maintain long-term viability the most likely course of action for the firm is to: A- operate at the current level of production. B- increase its level of production to gain economies of scale. C- decrease its level of production to the minimum point on the long-run average total cost curve.

A firm that increases its quantity produced without any change in per-unit cost is experiencing: A- economies of scale. B- diseconomies of scale. C- constant returns to scale.

A firm will most likely maximize profits at the quantity of output for which: A- price equals marginal cost. B- price equals marginal revenue. C- marginal cost equals marginal revenue.

A firm with convertible securities initially calculates that its diluted EPS is greater than its basic EPS. The firm will: A- not be required to report diluted EPS. B- report basic EPS that is not equal to reported diluted EPS. C- report basic EPS that is equal to reported diluted EPS.

A firm's average revenue is greater than its average variable cost and less than its average total cost. If this situation is expected to persist, the firm should: A- shut down in the short run and in the long run. B- shut down in the short run but operate in the long run. C- operate in the short run but shut down in the long run.

A fixed income analyst is least likely to conduct an independent analysis of credit risk because credit rating agencies: A- may at times mis-rate issues. B- often lag the market in pricing credit risk. C- cannot foresee future debt-financed acquisitions.

A forward premium indicates: A- an expected increase in demand for the base currency. B- the interest rate is higher in the base currency than in the price currency. C- the interest rate is higher in the price currency than in the base currency.

A friend has asked you to explain the differences between open-end and closed-end funds. Which of the following will you most likely include in your explanation? A- Closed-end funds are unavailable to new investors. B- When investors sell the shares of an open-end fund, they can receive a discount or a premium to the fund's net asset value. C- When selling shares, investors in an open-end fund sell the shares back to the fund whereas investors in a closed-end fund sell the shares to others in the secondary market.

A government enacts a program to subsidize farmers with an expansive spending program of $10 billion. At the same time, the government enacts a $10 billion tax increase over the same period. Which of the following statements best describes the impact on aggregate demand? A- Lower growth because the tax increase will have a greater effect. B- No effect because the tax and spending effects just offset each other. C- Higher growth because the spending increase will have a greater effect.

A government is concerned about the timing of the impact of fiscal policy changes and is considering requiring the compilation and reporting of economic statistics weekly, rather than quarterly. The new reporting frequency is intended to decrease: A- the action lag. B- the impact lag. C- the recognition lag.

A hedge fund that operates as an activist shareholder is most likely engaging in: A- a macro strategy. B- a relative value strategy. C- an event-driven strategy.

A hypothesis test for a normally-distributed population at a 0.05 significance level implies a: A- 95% probability of rejecting a true null hypothesis. B- 95% probability of a Type I error for a two-tailed test. C- 5% critical value rejection region in a tail of the distribution for a one-tailed test.

A mortgage that has a balloon payment equal to the original loan principal is: A- a convertible mortgage. B- a fully amortizing mortgage. C- an interest-only life time mortgage.

A portfolio contains equal weights of two securities having the same standard deviation. If the correlation between the returns of the two securities was to decrease, the portfolio risk would most likely: A- increase. B- remain the same. C- decrease.

A positive movement in a lagging indicator would least likely be used to: A- confirm that an expansion is currently underway. B- identify a past condition of the economy. C- identify an expected future economic upturn.

A price earnings ratio that is derived from the Gordon growth model is inversely related to the: A- growth rate. B- dividend payout ratio. C- required rate of return.

A private equity valuation approach that uses estimated multiples of cash flows to value a portfolio company is: A- the asset-based approach. B- the discount cash flow approach. C- the market/comparables approach.

A purely competitive firm will tend to expand its output so long as: A- marginal revenue is positive. B- marginal revenue is greater than price. C- market price is greater than marginal cost.

A risk management framework least likely includes: A- risk governance, risk mitigation, and strategic risk analysis. B- identifying and measuring risks, risk policies and processes, and risk governance. C- risk mitigation, tracking the organization's risk profile, and establishing position limits.

A risk metric that measures how different an actual investment outcome could be from what the investor expects is most likely a: A- vega. B- duration. C- standard deviation.

A sector rotation strategy involves investing in a sector by: A- making regular investments in it. B- investing in a pre-selected group of sectors on a rotating basis. C- timing investment to take advantage of business-cycle conditions.

A security market index represents the: A- risk of a security market. B- security market as a whole. C- security market, market segment, or asset class.

A short-run macroeconomic equilibrium in which output must decrease to restore long-run equilibrium is most accurately characterized as: A- stagflation. B- a recessionary gap. C- an inflationary gap.

A sovereign bond has a maturity of 15 years. The bond is best described as a: A- perpetual bond. B- pure discount bond. C- capital market security

A synthetic collateralized debt obligation is a CDO backed by a portfolio of: A- leveraged bank loans. B- residential or commercial mortgage-backed securities. C- credit default swaps.

A trader seeking to sell a very large block of stock for her client will most likely execute the trade in a(n): A- quote-driven market. B- order-driven market. C- brokered market.

A valuation model based on free cash flow to equity is most likely to be: A- a multiplier model. B- an asset-based model. C- a present value model.

ABC Company has an obligation to pay a certain amount each month to each of its employees after they retire. This obligation is most likely known as a(n): A- endowment. B- defined-contribution pension plan. C- defined-benefit pension plan.

According to good corporate governance practices, which of the following committees is most likely to have members from executive management? A- Remuneration B- Audit C- Environmental health and safety

According to the US presidential cycle theory, the DJIA has the best performance during which year? A- The presidential election year itself. B- The first year following a presidential election. C- The third year following a presidential election.

Accounting policies, methods, and estimates used in preparing financial statements are most likely to be found in the: A- auditor's report. B- management commentary. C- notes to the financial statements.

Akihiko Takabe has designed a sophisticated forecasting model, which predicts the movements in the overall stock market, in the hope of earning a return in excess of a fair return for the risk involved. He uses the predictions of the model to decide whether to buy, hold, or sell the shares of an index fund that aims to replicate the movements of the stock market. Takabe would best be characterized as a(n): A- hedger. B- investor. C- information-motivated trader.

Among the types of assets that trade in organized markets, asset-backed securities are best characterized as: A- real assets. B- equity securities. C- pooled investment vehicles.

An aggregate fixed-income index: A- comprises corporate and asset-backed securities. B- represents the market of government-issued securities. C- can be subdivided by market or economic sector to create more narrowly defined indexes.

An aging schedule is most likely used by a company to evaluate its management of: A- inventories. B- accounts payable. C- accounts receivable.

An analysis used to forecast earnings that shows the changes in key financial quantities that result from alternative sets of economic events best describes which of the following techniques? A- Sensitivity analysis B- Simulation C- Scenario analysis

An analyst is evaluating the degree of competition in an industry and compiles the following information: - Few significant barriers to entry or exit exist. - Firms in the industry produce slightly differentiated products. - Each firm faces a demand curve that is largely unaffected by the actions of other individual firms in the industry. The analyst should characterize the competitive structure of this industry as: A- oligopoly. B- monopoly. C- monopolistic competition.

An analyst is reviewing the property, plant, and equipment disclosure related to a company's warehouse. The company uses the International Financial Reporting Standards (IFRS) revaluation model. The analyst would least likely be able to determine: A- the carrying amount under the cost model. B- how the fair value was obtained. C- the original date of acquisition.

An analyst observes a decrease in a company's inventory turnover. Which of the following would most likely explain this trend? A- The company installed a new inventory management system, allowing more efficient inventory management. B- Due to problems with obsolescent inventory last year, the company wrote off a large amount of its inventory at the beginning of the period. C- The company installed a new inventory management system but experienced some operational difficulties resulting in duplicate orders being placed with suppliers.

An analyst reviewing a firm with a large reported restructuring charge to earnings should: A- view expenses reported in prior years as overstated. B- disregard it because it is solely related to past events. C- consider making pro forma adjustments to prior years' earnings.

An analyst should most likely include two firms in the same peer group for analysis if the firms: A- are both grouped in the same industry classification. B- are similar in size, industry life-cycle stage, and cyclicality. C- derive their revenue and earnings from similar business activities.

An analyst wanting to assess the downside risk of an alternative investment is least likely to use the investment's: A- Sortino ratio. B- value at risk (VaR). C- standard deviation of returns.

An arbitrage transaction generates a net inflow of funds: A- throughout the holding period. B- at the end of the holding period. C- at the start of the holding period.

An at-the-money American call option on a stock that pays no dividends has three months remaining until expiration. The market value of the option will most likely be: A- less than its exercise value. B- equal to its exercise value. C- greater than its exercise value.

An equity fund manager is considering a market index as the benchmark for his portfolio, and he has the following preferences: - the index should have a contrarian effect - shares held by controlling shareholders should be included - dividends should be included in the weighting of constituent securities - the weights of constituent securities should not be arbitrarily determined by the index provider. Which of the following weightings of indexes best meets the fund manager's preferences? A- Equal B- Float-adjusted market capitalization C- Fundamental

An equity hedge fund following a fundamental growth strategy uses fundamental analysis to identify companies that are most likely to: A- be undervalued. B- be either undervalued or overvalued. C- experience high growth and capital appreciation.

An ethical decision-making framework will most likely: A- include a pre-determined, uniform sequence. B- focus exclusively on confirmable facts and relationships. C- help avoid a decision that has unanticipated ethical consequences.

An example of a contra asset account is: A- depreciation expense. B- sales returns and allowances. C- allowance for doubtful accounts.

An example of a non-financial risk is: A- market risk. B- liquidity risk. C- settlement risk.

An example of a primary source of liquidity is: A- liquidating assets. B- negotiating debt contracts. C- short-term investment portfolios.

An example of an expense classification by function is: A- tax expense. B- interest expense. C- cost of goods sold.

An expansionary fiscal policy is least likely to include an increase in: A- government expenditures. B- budget deficit. C- tax rates.

An increase in assets and a decrease in liabilities that occur simultaneously and in equivalent magnitude are consistent with which of the following changes in equity? A- A decrease B- No change C- An increase

An increase in both aggregate demand and supply occurs, with aggregate supply increasing more than aggregate demand. The most likely result is a decrease in the: A- real GDP. B- participation rate. C- price level.

An investor who buys a government bond from a dealer's inventory is said to obtain: A- a real asset in a primary market transaction. B- a financial asset in a primary market transaction. C- a financial asset in a secondary market transaction.

An investor who chooses a fund-of-funds as an alternative to a single hedge fund is most likely to benefit from: A- lower fees. B- higher returns. C- more due diligence.

An investor worried about a company's long-term solvency would most likely examine its: A- current ratio. B- return on equity. C- debt-to-equity ratio.

An issuer credit rating usually applies to a company's: A- secured debt. B- subordinated debt. C- senior unsecured debt.

An option-adjusted spread (OAS) on a callable bond is the Z-spread: A- over the benchmark spot curve. B- minus the standard swap rate in that currency of the same tenor. C- minus the value of the embedded call option expressed in basis points per year.

An organization choosing to accept a risk exposure may: A- buy insurance. B- enter into a derivative contract. C- establish a reserve fund to cover losses.

Arbitrage prevents: A- market efficiency. B.- earning returns higher than the risk-free rate of return. C- two assets with identical payoffs from selling at different prices.

As part of the Duties to Clients standard, members and candidates must: A- document client financial constraints after an initial investment action. B- maintain an equal balance of interests owed to their clients and employers. C- deal fairly and objectively with all clients when engaging in professional activities.

As stated in the revised 11th edition, the Standards of Professional Conduct: A- require supervisors to focus on the detection and prevention of violations. B- adopt separate ethical considerations for programs such as CIPM and Investment Foundations. C- address the risks and limitations of recommendations being made to clients.

As the expansion phase of the business cycle advances from early stage to late stage, businesses most likely experience a decrease in: A- labor costs. B- capital investment. C- availability of qualified workers.

As the loan-to-value ratio increases for a real estate investment, risk most likely increases for: A- debt investors only. B- equity investors only. C- both debt and equity investors.

Assume that the central bank reduces the reserve requirement. The most likely effect will be: A- a decrease in the money supply. B- a decrease in new deposits. C- an increase in the money multiplier.

Assuming all other factors remain unchanged, which of the following changes would most likely cause a simultaneous increase in the participation ratio and a decrease in the unemployment rate? A- A decrease in the number of unemployed people B- A decrease in the total population of working-age people C- An increase in the number of people included in the labor force

Assuming no changes in other variables, which of the following would decrease ROA? A- A decrease in the effective tax rate. B- A decrease in interest expense. C- An increase in average assets.

Assuming the value effect persists over time, which of the following strategies would be most likely to earn positive abnormal returns? Purchase stocks with: A- low dividend yields. B- high market-to-book ratios. C- low price-to-earnings ratios.

At expiration, a European put option will be valuable if the exercise price is: A- less than the underlying price. B- equal to the underlying price. C- greater than the underlying price.

At expiration, the exercise value of a call option is: A- the underlying asset price minus the exercise price. B- the greater of zero or the exercise price minus the underlying asset price. C- the greater of zero or the underlying asset price minus the exercise price.

Balance sheet items presented on a current value basis are measured at the: A- start of the reporting period. B- midpoint of the reporting period. C- end of the reporting period.

Based on typical labor utilization patterns across the business cycle, productivity (output per hours worked) is most likely to be highest: A- at the peak of a boom. B- into a maturing expansion C- at the bottom of a recession.

Because of a sharp decline in real estate values, the household sector has increased the fraction of disposable income that it saves. If output and investment spending remain unchanged, which of the following is most likely? A- A decrease in the government deficit. B- A decrease in net exports and increased capital inflow. C- An increase in net exports and increased capital outflow.

Benchmarks for minimally acceptable behaviors of community members are: A- a code of ethics. B- laws and regulations. C- standards of conduct.

Bill Cooper finds a table of historical bond yields on the website of the U.S. Treasury that supports the work he has done in his analysis and includes the table as part of his report without citing the source. Has Cooper violated the Code and Standards? A- Yes, because he did not cite the source of the table. B- Yes, because he did not verify the accuracy of the information. C- No, because the table is from a recognized source of financial or statistical data.

Bollinger Bands are constructed by plotting: A- a MACD line and a signal line. B- a moving-average line with an uptrend line above and downtrend line below. C- a moving-average line with upper and lower lines that are at a set number of standard deviations apart.

Book value is least likely to be considered when using: A- a multiplier model. B- an asset-based valuation model. C- a present value model.

Business risk is the combination of: A- operating risk and financial risk. B- sales risk and financial risk. C- operating risk and sales risk.

Cash flows from taxes on income must be separately disclosed under: A- IFRS only. B- US GAAP only. C- both IFRS and US GAAP.

Centro Corp. recently issued a floating-rate note (FRN) that includes a feature that prevents its coupon rate from falling below a prespecified minimum rate. This feature in an FRN is most likely referred to as a: A- cap. B- collar. C- floor.

Cinnamon, Inc. recorded a total deferred tax asset in Year 3 of $12,301, offset by a $12,301 valuation allowance. Cinnamon most likely: A- fully utilized the deferred tax asset in Year 3. B- has an equal amount of deferred tax assets and deferred tax liabilities. C- expects not to earn any taxable income before the deferred tax asset expires.

Cobb, Inc., has hired Jude Kasten, CFA, to manage its pension fund. The client(s) to whom Kasten owes a duty of loyalty are: A- Cobb's management. B- the shareholders of Cobb, Inc. C- the beneficiaries of the pension fund.

Commodity futures prices are most likely in backwardation when: A- interest rates are high. B- storage costs are high. C- the convenience yield is high.

Compared to managers of traditional investments, managers of alternative investments are likely to have fewer restrictions on: A- holding cash. B- buying stocks. C- using derivatives.

Compared to other firms in the same industry, an issuer with a credit rating of AAA should have a lower: A- FFO/debt ratio. B- operating margin. C- debt/capital ratio.

Compared to public equity, which of the following is least likely to characterize private equity? A- Lower reporting costs. B- Potentially weaker corporate governance. C- Lower returns because of its less liquid market.

Compared to purchasing a long-lived asset using debt financing, leasing the asset most likely: A- is more costly to the lessee. B- places more restrictions on the lessee. C- allows the lessee to avoid the risk of obsolescence.

Compared with an otherwise identical option-free bond, when interest rates fall, the price of a callable bond will: A- rise more. B- fall less. C- rise less.

Compared with long-only investments in stocks and bonds, alternative investments are most likely characterized by less: A- flexibility to use derivatives. B- manager specialization. C- transparency.

Compared with traditional investments, over longer periods, alternative investments are least likely to have: A- better diversifying power. B- higher expected returns. C- more efficiently priced assets.

Compared with using the FIFO (first in, first out) method to account for inventory, during a period of rising prices, which of the following is most likely higher for a company using LIFO (last in, first out)? A- Current ratio B- Gross margin C- Inventory turnover

Comparison of a company's financial results to other peer companies for the same time period is called: A- technical analysis. B- time-series analysis. C- cross-sectional analysis.

Connie Fletcher, CFA, works for a small money management firm that specializes in pension accounts. Recently, a friend asked her to act as an unpaid volunteer manager for the city's street sweep pension fund. As part of the position, the city would grant Fletcher a free parking space in front of her downtown office. Before Fletcher accepts, she should most appropriately: A- do nothing because this is a volunteer position. B- inform her current clients in writing and discuss the offer with her employer. C- disclose the details of the volunteer position to her employer and obtain written permission from her employer.

Consider a firm in an oligopoly market that believes the demand curve for its product is more elastic above a certain price than below this price. This belief fits most closely to which of the following models? A- Cournot model. B- Dominant firm model. C- Kinked demand model.

Consider a five-year option-free bond that is priced at a discount to par value. Assuming the discount rate does not change, one year from now the value of the bond will most likely: A- stay the same. B- decrease. C- increase.

Consider two 10-year bonds, one that contains no embedded options and the other that gives its owner the right to convert the bond to a fixed number of shares of the issuer's common stock. The convertibility option in the second bond cannot be exercised for five years. The bonds are otherwise identical. Compared with the yield on the convertible bond, the yield on the option-free bond is most likely: A- the same. B- lower. C- higher.

Core inflation is best described as an inflation rate: A- for producers' raw materials. B- the central bank views as acceptable. C- that excludes certain volatile goods prices.

Corporate governance: A- complies with a set of global standards. B- is independent of both shareholder theory and stakeholder theory. C- seeks to minimize and manage conflicting interests between insiders and external shareholders.

Credit analysts are likely to consider a company's credit quality to be improving if the company reduces its: A- scale and diversification. B- margin stability. C- leverage.

Credit analysts are likely to consider which of the following in making a rating recommendation? A- Business risk but not financial risk B- Financial risk but not business risk C- Both business risk and financial risk

Credit risk of a corporate bond is best described as the: A- risk that an issuer's creditworthiness deteriorates. B- probability that the issuer fails to make full and timely payments. C- risk of loss resulting from the issuer failing to make full and timely payments.

Credit spreads are most likely to narrow during: A- economic contractions. B- a period of flight to quality. C- economic expansions.

Credit spreads are most likely to widen: A- in a strengthening economy. B- as the credit cycle improves. C- in periods of heavy new issue supply and low borrower demand.

Daniel Ferramosco is concerned that a long-term bond he holds might default. He therefore buys a contract that will compensate him in the case of default. What type of contract does he hold? A- Physical derivative contract. B- Primary derivative contract. C- Financial derivative contract.

Daniel Lyons, CFA, is an analyst who covers several stocks including Horizon Company. Lyons's aunt owns 30,000 shares of Horizon. She informs Lyons that she has created a trust in his name into which she has placed 2,000 shares of Horizon. The trust is structured so that Lyons will not be able to sell the shares until his aunt dies, but may vote the shares. Lyons is due to update his research coverage of Horizon next week. Lyons should most appropriately: A- update the report as usual because he is not a beneficial owner of the stock. B- advise his superiors that he is no longer able to issue research recommendations on Horizon. C- disclose the situation to his employer and, if then asked to prepare a report, also disclose his beneficial ownership of the shares in his report.

Debt covenants are least likely to place restrictions on the issuer's ability to: A- pay dividends. B- issue additional debt. C- issue additional equity.

Debt with a maturity date beyond a company's next operating cycle is most likely classified as a component of: A- trade payables. B- accrued liabilities. C- non-current liabilities.

Deep River Manufacturing is one of many companies in an industry that make a food product. Deep River units are identical up to the point they are labeled. Deep River produces its labeled brand, which sells for $2.20 per unit, and "house brands" for seven different grocery chains which sell for $2.00 per unit. Each grocery chain sells both the Deep River brand and its house brand. The best characterization of Deep River's market is: A- oligopoly. B- perfect competition. C- monopolistic competition.

Defining total asset turnover as revenue divided by average total assets, all else equal, impairment write-downs of long-lived assets owned by a company will most likely result in an increase for that company in: A- the debt-to-equity ratio but not the total asset turnover. B- the total asset turnover but not the debt-to-equity ratio. C- both the debt-to-equity ratio and the total asset turnover.

Degree of operating leverage is best described as a measure of the sensitivity of: A- net earnings to changes in sales. B- fixed operating costs to changes in variable costs. C- operating earnings to changes in the number of units produced and sold.

Derivatives are least likely to: A- improve liquidity. B- provide price information. C- prevent arbitrage.

Derivatives may contribute to financial contagion because of the: A- centrally cleared nature of OTC derivatives. B- associated significant costs and high capital requirements. C- reliance by derivatives speculators on large amounts of leverage.

Direct commercial real estate ownership least likely requires investing in: A- large amounts. B- illiquid assets. C- a short time horizon.

Disinflation is best described as a: A- decline in price levels. B- negative inflation rate. C- decline in the inflation rate.

Economic value is created for an industry's shareholders when the industry earns a return: A- below the cost of capital. B- equal to the cost of capital. C- above the cost of capital.

Effective duration is more appropriate than modified duration for estimating interest rate risk for bonds with embedded options because these bonds: A- tend to have greater credit risk than option-free bonds. B- exhibit high convexity that makes modified duration less accurate. C- have uncertain cash flows that depend on the path of interest rate changes.

Effective risk governance in an enterprise provides guidance on all of the following except: A- unacceptable risks. B- worst losses that may be tolerated. C- specific methods to mitigate risk for each subsidiary in the enterprise.

Emerging markets have benefited from recent trends in international markets. Which of the following has not been a benefit of these trends? A- Emerging market companies do not have to worry about a lack of liquidity in their home equity markets. B- Emerging market companies have found it easier to raise capital in the markets of developed countries. C- Emerging market companies have benefited from the stability of foreign exchange markets.

Employing a framework for decision making that includes the ethical aspects of the decision is most likely to: A- lead to higher profits. B- avoid any unintended ethical consequences of decisions. C- balance the interests of various stakeholders.

Evidence of risk aversion is best illustrated by a risk-return relationship that is: A- negative. B- neutral. C- positive.

Exchange-traded derivatives are: A- largely unregulated. B- traded through an informal network. C- guaranteed by a clearinghouse against default.

Expected future benefits to be received from a common share are most likely an important input for a(n): A- asset-based model. B- multiplier model. C- present value model.

Expected loss can decrease with an increase in a bond's: A- default risk. B- loss severity. C- recovery rate.

Expenses on the income statement may be grouped by: A- nature, but not by function. B- function, but not by nature. C- either function or nature.

Fixed-income indexes are least likely constructed on the basis of: A- maturity. B- type of issuer. C- coupon frequency.

For a mortgage pass-through security, which of the following risks most likely increases as interest rates decline? A- Balloon B- Extension C- Contraction

For a risk-averse investor, the price of a risky asset, assuming no additional costs and benefits of holding the asset, is: A- unrelated to the risk-free rate. B- directly related to its level of risk. C- inversely related to its level of risk.

For bonds that are otherwise identical, the one exhibiting the highest level of positive convexity is most likely the one that is: A- callable. B- option-free. C- putable.

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.

Hedge funds most likely: A- have stricter reporting requirements than a typical investment firm because of their use of leverage and derivatives. B- hold equal values of long and short securities. C- are not offered for sale to the general public.

Hern Investments provides monthly emerging market research to Baker Brokerage in exchange for prospective client referrals and European equity research from Baker. Clients and prospects of Hern are not made aware of the agreement, but clients unanimously rave about the high quality of the research provided by Baker. As a result of the research, many clients with nondiscretionary accounts have earned substantial returns on their portfolios. Managers at Hern have also used the research to earn outstanding returns for the firm's discretionary accounts. Hern has most likely: A- not violated the Code and Standards. B- violated the Code and Standards by using third-party research in discretionary accounts. C- violated the Code and Standards by failing to disclose the referral agreement with Baker.

High ethical standards are distinguishing features of which of the following bodies? A- Craft guilds B- Trade bodies C- Professional bodies

Holding all other factors constant, which of the following situations will most likely lead to an increase in a company's return on equity? A- The market price of the company's shares increases. B- Net income increases at a slower rate than shareholders' equity. C- The company issues debt to repurchase outstanding shares of equity.

Holding the working-age population constant, if the labor force participation ratio declines while the number of people employed remains unchanged, the unemployment rate will most likely: A- increase. B- remain unchanged. C- decrease.

How can a bank create a synthetic 60-day forward rate agreement on a 180-day interest rate? A- Borrow for 180 days and lend the proceeds for 60 days. B- Borrow for 180 days and lend the proceeds for 120 days. C- Borrow for 240 days and lend the proceeds for 60 days.

If a call option is priced higher than the binomial model predicts, investors can earn a return in excess of the risk-free rate by: A- investing at the risk-free rate, selling a call, and selling the underlying. B- borrowing at the risk-free rate, buying a call, and buying the underlying. C- borrowing at the risk-free rate, selling a call, and buying the underlying.

If a company has a deferred tax asset reported on its statement of financial position and the tax authorities reduce the tax rate, which of the following statements is most accurate concerning the effect of the change? The existing deferred tax asset will: A- not be affected. B- increase in value. C- decrease in value.

If a company repurchases its own shares and can reissue them at a later time, these shares are best described as: A- preferred stock. B- marketable securities. C-treasury stock.

If a company uses the fair value model to value investment property, changes in the fair value of the asset are least likely to affect: A- net income. B- net operating income. C- other comprehensive income.

If a country's inflation rate is below the central bank's target rate, the central bank is most likely to: A- sell government securities. B- increase the reserve requirement. C- decrease the overnight lending rate.

If a market is weak-form efficient but semi-strong-form inefficient, then which of the following types of portfolio management is most likely to produce abnormal returns? A- Passive portfolio management. B- Active portfolio management based on technical analysis. C- Active portfolio management based on fundamental analysis.

If a member or candidate is offered an additional compensation arrangement by a client, which of the seven Standards of Professional Conduct states the requirements the member or candidate must follow? A- Duties to Clients. B- Conflicts of Interest. C- Duties to Employers.

If a test rejects the hypothesis that market prices reflect private information but does not reject the hypothesis that they reflect past market data and public information, then the form of market efficiency is best described as: A- weak. B- strong. C- semi-strong.

If an analyst is concerned about the liquidity of a company's inventory, he would most likely look in the notes to the financial statements to determine the: A- amount of inventories recognized as expense during the period. B- cost formula or inventory valuation method used. C- breakdown of inventory between work in progress and finished goods.

If an issuer is required to retire a specified portion of the bond's principal each year, the bond most likely: A- is callable. B- is a step-up note. C- has a sinking fund provision.

If goodwill makes up a large percentage of a company's total assets, this most likely indicates that: A- the company has low free cash flow before dividends. B- there is a low likelihood that the market price of the company's common stock is below book value. C- a large percentage of the company's assets are not of high quality.

If the cross-price elasticity between two goods is negative, the two goods are classified as: A- normal. B- substitutes. C- complements.

If the money supply is increasing and velocity is decreasing: A- prices will decrease. B- real GDP will increase. C- the impact on prices and real GDP is uncertain.

If the present value of storage costs exceeds the present value of its convenience yield, then the commodity's forward price is most likely: A- less than the spot price compounded at the risk-free rate. B- the same as the spot price compounded at the risk-free rate. C- higher than the spot price compounded at the risk-free rate.

If the price elasticity coefficient of the demand curve for paper clips is equal to -1, demand is: A- elastic. B- inelastic. C- unit elastic.

If the price return of an equal-weighted index exceeds that of a market-capitalization-weighted index comprised of the same securities, the most likely explanation is: A- stock splits. B- dividend distributions. C- outperformance of small-market-capitalization stocks.

If there is a policy rate of 3%, a real trend rate of growth in the underlying economy of 1%, and long-run expected inflation of 3%, then the central bank policy stance operating within a credible inflation-targeting regime is best described as: A- neutral. B- contractionary. C- expansionary.

If two companies have identical unit sales volume and operating risk, they are most likely to also have identical: A- sales risk. B- business risk. C- sensitivity of operating earnings to changes in the number of units produced and sold.

In 2015, a company undertook the following two transactions: 1- Borrowed money from an insurance company and pledged some of its production facilities as collateral for the loan. 2- Entered into an agreement with a local construction company to build a new research facility at a fixed price. Construction is to begin by 1 January 2016 and be completed by 31 December 2018. With respect to required disclosures in the company's financial statements, which of the following is most accurate? If the company reports under: A- US GAAP, only the pledged borrowing must be disclosed. B- International Financial Reporting Standards (IFRS), neither transaction must be disclosed. C- US GAAP, neither transaction must be disclosed.

In a comprehensive financial analysis, financial statements should be: A- used as reported without adjustment. B- adjusted after completing ratio analysis. C- adjusted for differences in accounting standards, such as international financial reporting standards and US generally accepted accounting principles.

In a defined benefit pension plan: A- the employee assumes the investment risk. B- the employer contributes to the employee's retirement account each period. C- the plan sponsor promises a predetermined retirement income to participants.

In a securitization, the seller of the pool of securitized assets is the: A- trustee. B- special purpose entity. C- depositor.

In an efficient market, it is more likely that fundamental value will be reflected in the: A- underlying spot market before the derivative market. B- derivatives market and the underlying spot market at the same time. C- derivatives market before the underlying spot market.

In analyzing a price chart, high or increasing volume most likely indicates which of the following? A- Predicts a reversal in the price trend. B- Predicts that a trendless period will follow. C- Confirms a rising or declining trend in prices.

In asset-based valuation models, the intrinsic value of a common share of stock is based on the: A- estimated market value of the company's assets. B- estimated market value of the company's assets plus liabilities. C- estimated market value of the company's assets minus liabilities.

In calculating personal income for a given year, which of the following would not be subtracted from national income? A- Indirect business taxes. B- Undistributed corporate profits. C- Unincorporated business net income.

In comparison to equity indexes, the constituent securities of fixed-income indexes are: A- more liquid. B- easier to price. C- drawn from a larger investment universe.

In contrast to US GAAP, cash flow statements prepared under IFRS: A- require adherence to the direct method format when reporting operating activities. B- are less flexible regarding the classification of dividends paid or received. C- allow interest receipts to be classified as either operating or investing cash flows.

In contrast to a forward contract, a futures contract: A- trades over-the-counter. B- is initiated at a zero value. C- is marked-to-market daily.

In defining asset classes as part of the strategic asset allocation decision, pairwise correlations within asset classes should generally be: A- equal to correlations among asset classes. B- lower than correlations among asset classes. C- higher than correlations among asset classes.

In futures markets, contract performance is most likely guaranteed by: A- the futures exchanges. B- regulatory agencies. C- clearing houses.

In most countries, the bond market sector with the smallest amount of bonds outstanding is most likely the: A- government sector. B- financial corporate sector. C- non-financial corporate sector.

In order to analyze the collateral of a company a credit analyst should assess the: A- cash flows of the company. B- soundness of management's strategy. C- value of the company's assets in relation to the level of debt.

In practice, both a fixed parity regime and a target zone regime allow the exchange rate to float within a band around the parity level. The most likely rationale for the band is that the band allows the monetary authority to: A- be less active in the currency market. B- earn a spread on its currency transactions. C- exercise more discretion in monetary policy.

In preparing an investment policy statement, which of the following is most difficult to quantify? A- Time horizon. B- Ability to accept risk. C- Willingness to accept risk.

In probability theory, exhaustive events are best described as events: A- with a probability of zero. B- that are mutually exclusive. C- that include all potential outcomes

In situations where the laws of a member or candidate's country of residence, the local laws of regions where the member or candidate does business, and the Code and Standards specify different requirements, the member or candidate must abide by: A- local law or the Code and Standards, which ever is stricter. B- the Code and Standards or his country's laws, which ever are stricter. C- the strictest of local law, his country's laws, or the Code and Standards.

In the Ricardian trade model, a country captures more of the gains from trade if: A- it produces all products while its trade partner specializes in one good. B- the terms of trade are closer to its autarkic prices than to its partner's autarkic prices. C- the terms of trade are closer to its partner's autarkic prices than to its autarkic prices.

Low risk tolerance and high liquidity requirements best describe the typical investment needs of: A- a defined-benefit pension plan. B- a foundation. C- an insurance company.

In the case of a complaint about a member's professional conduct, CFA Institute Professional Conduct Program staff are least likely to: A- review documents and records related to the complaint. B- request an interview with the member or with the party making the complaint. C- suspend the member's right to use the CFA designation while an investigation is in progress.

In the early part of an economic expansion, inventory-sales ratios are most likely to: A- increase because sales are unexpectedly low. B- increase because businesses plan for expansion. C- decrease because of unexpected increases in sales.

In the use of machine learning (ML): A- some techniques are termed "black box" due to data biases. B- human judgment is not needed because algorithms continuously learn from data. C- training data can be learned too precisely, resulting in inaccurate predictions when used with different datasets.

In using matrix pricing to estimate the required yield spread on a new corporate bond issue, the benchmark rate used is most likely to be the: A- coupon rate on a government bond with a similar time to maturity. B- yield to maturity on a corporate bond with similar credit risk and time to maturity. C- yield to maturity on a government bond with a similar time to maturity.

In which of the following inflation scenarios does short-run aggregate supply decrease due to increasing wage demands? A- Cost-push inflation. B- Demand-pull inflation. C- Both cost-push and demand-pull inflation.

In which of the following types of markets do stocks trade any time the market is open? A- Exchange markets. B- Call markets. C- Continuous markets.

In which of these characteristics is the oil producing industry most likely similar to the home building industry? A- Industry concentration. B- Demographic influences. C- Business cycle sensitivity.

Income tax expense reported on a company's income statement equals taxes payable, plus the net increase in: A- deferred tax assets and deferred tax liabilities. B- deferred tax assets, less the net increase in deferred tax liabilities. C- deferred tax liabilities, less the net increase in deferred tax assets.

Increased household wealth will most likely cause an increase in: A- household saving. B- investment expenditures. C- consumption expenditures.

Increasing the amount of one productive input while keeping the amounts of other inputs constant results in diminishing marginal returns: A- in all cases. B- when it causes total output to decrease. C- when the increase in total out put becomes smaller.

Intangible assets with finite useful lives mostly differ from intangible assets with infinite useful lives with respect to accounting treatment of: A- revaluation. B- impairment. C- amortization.

Interest paid is classified as an operating cash flow under: A- US GAAP but may be classified as either operating or investing cash flows under IFRS. B- IFRS but may be classified as either operating or investing cash flows under US GAAP. C- US GAAP but may be classified as either operating or financing cash flows under IFRS.

Inventory cost is least likely to include: A- production-related storage costs. B- costs incurred as a result of normal waste of materials. C- transportation costs of shipping inventory to customers.

Investors who believe that interest rates will rise most likely prefer to invest in: A- inverse floaters. B- fixed-rate bonds. C- floating-rate notes.

Investors who exhibit loss aversion most likely: A- have symmetric risk preferences. B- are highly risk averse. C- dislike losses more than they like equal gains.

Investors will most likely have difficulty managing diversification across hedge funds if the funds: A- make decisions via investment committees. B- fail to appoint chief risk officers. C- seek to keep their strategies private.

It is least likely that a forward contract: A- has counter party risk. B- can be settled in cash. C- requires a margin deposit.

Jay Company has a debt-to-equity ratio of 2.0. Jay is evaluating the cost of equity for a project in the same line of business as Cass Company (Cass) and will use the pure-play method with Cass as the comparable firm. Cass has a beta of 1.2 and a debt-to-equity ratio of 1.6. The project beta most likely: A- will be less than Jay Company's beta. B- will be greater than Jay Company's beta. C- could be greater than or less than Jay Company's beta.

Jayco, Inc., sells blue ink for $4 a bottle. The ink's variable cost per bottle is $2. Ink has fixed operating costs of $4,000 and fixed financing costs of $6,000. What is Jayco's breakeven quantity of sales, in units? A- 2,000. B- 3,000. C- 5,000.

Jean-Luc Schlumberger, CFA, is an independent research analyst providing equity research on companies listed on exchanges in emerging markets. He often incorporates statistical data he obtains from the web sites of the World Bank and the central banks of various countries into the body of his research reports. While not indicated within the reports, whenever his clients ask where he gets his information he informs them the information is in the public domain but he doesn't keep his own records. When the clients ask for the specific web site addresses he provides the information. Which Standard has Schlumberger least likely violated? A- Record Retention B- Misrepresentation C- Performance Presentation

Juan Martinez, CFO of VIRMIN, S.A., is selecting the depreciation method to use for a new machine. The machine has an expected useful life of six years. Production is expected to be relatively low initially but to increase over time. The method chosen for tax reporting must be the same as the method used for financial reporting. If Martinez wants to minimize tax payments in the first year of the machine's life, which of the following depreciation methods is Martinez most likely to use? A- Straight-line method. B- Units-of-production method. C- Double-declining balance method.

LIBOR rates are determined: A- by countries' central banks. B- by money market regulators. C- in the interbank lending market.

Liabilities of a company equal: A- assets plus equity. B- equity minus assets. C- assets minus equity.

One reason that the last-in, first-out (LIFO) inventory valuation method is widely used in the United States is most likely that it: A- results in higher reported gross profit. B- is available under both US GAAP and International Financial Reporting Standards. C- results in higher operating cash flows.

Other things equal, an increase of 2.0% in the price of Product X results in a 1.4% increase in the quantity demanded of Product Y and a 0.7% decrease in the quantity demanded of Product Z. Which statement about products X, Y and Z is least accurate? A- Products X and Y are substitutes. B- Products X and Z are complements. C- Products Y and Z are complements.

Other things equal, which of the following actions related to property, plant, and equipment will most likely decrease a firm's return on assets in future periods? A- Impairment. B- Derecognition. C- Upward revaluation.

Participating preference shares entitle shareholders to: A- participate in the decision-making process of the company. B- convert their shares into a specified number of common shares. C- receive an additional dividend if the company's profits exceed a pre-determined level.

Portfolio managers who are maximizing risk-adjusted returns will seek to invest more in securities with: A- lower values of Jensen's alpha. B- values of Jensen's alpha equal to 0. C- higher values of Jensen's alpha.

Portfolio managers, who are maximizing risk-adjusted returns, will seek to invest less in securities with: A- lower values for nonsystematic variance. B- values of nonsystematic variance equal to 0. C- higher values for nonsystematic variance.

Principal payments associated with credit card receivable-backed securities are: A- distributed to investors as a balloon payment. B- reinvested after the lockout period. C- distributed to investors after the lockout period.

Qualities of effective central banks include: A- credibility and verifiability. B- comparability and relevance. C- independence and transparency.

Raising the reserve requirement is most likely an example of which type of monetary policy? A- Neutral. B- Expansionary. C- Contractionary.

Rebalancing an index is the process of periodically adjusting the constituent: A- securities' weights to optimize investment performance. B- securities to maintain consistency with the target market. C- securities' weights to maintain consistency with the index's weighting method.

Red Company immediately expenses its development costs while Black Company capitalizes its development costs. All else equal, Red Company will: A- show smoother reported earnings than Black Company. B- report higher operating cash flow than Black Company. C- report higher asset turnover than Black Company.

Risk assessment questionnaires for investment management clients are most useful in measuring: A- value at risk. B- ability to take risk. C- willingness to take risk.

Rogers Partners values stocks using a dividend discount model and the CAPM. Holding all other factors constant, which of the following is least likely to increase the estimated value of a stock? A- An increase in the next period's expected dividend. B- A decrease in the stock's systematic risk. C- A decrease in the expected growth rate of dividends.

Sales in the retail sector have been sluggish, and consumer confidence has recently declined, indicating fewer planned purchases. In response, the president sends an expansionary government spending plan to the legislature. The plan is submitted on March 30, and the legislature refines and approves the terms of the spending plan on June 30. What type of fiscal plan is being considered, and what type of delay did the plan experience between March 30 and June 30? Fiscal plan Type of lag A- Discretionary Recognition B- Automatic Action C- Discretionary Action

Sato Kashingaki, CFA, is a financial advisor who practices in multiple jurisdictions. In his resident country, Country A, he is not required by law to hold a financial advisor's license but he is required to uphold a fiduciary duty to his clients. In Country B, authorities require him to hold a financial advisor's license, but he is not expected to uphold a fiduciary duty to his clients. In Country C, authorities require both a financial advisor's license and an asset management license in addition to upholding a fiduciary responsibility toward clients. In which of the three countries does Kashingaki have the duty to adhere to the CFA Code and Standards over local laws? A- Country A. B- Country B. C- Country C.

Securitization benefits financial markets by: A- increasing the role of intermediaries. B- establishing a barrier between investors and originating borrowers. C- allowing investors to tailor credit risk and interest rate risk exposures to meet their individual needs.

Security market indexes are used as: A- measures of investment returns. B- proxies to measure unsystematic risk. C- proxies for specific asset classes in asset allocation models.

Situational factors that influence ethical behavior are least likely to include: A- social pressure. B- large financial rewards. C- a lack of ethical principles.

Sovereign bonds are best described as: A- bonds issued by local governments. B- secured obligations of a national government. C- bonds backed by the taxing authority of a national government.

Stedsmart Ltd and Fignermo Ltd are alike with respect to financial and operating characteristics, except that Stedsmart Ltd has less publicly traded debt outstanding than Fignermo Ltd. Stedsmart Ltd is most likely to have: A- no market liquidity risk. B- lower market liquidity risk. C- higher market liquidity risk.

Support tranches are most appropriate for investors who are: A- concerned about their exposure to extension risk. B- concerned about their exposure to concentration risk. C- willing to accept prepayment risk in exchange for higher returns.

Survivorship bias in reported hedge fund index returns will most likely result in index: A- returns and risk that are biased upward. B- returns and risk that are biased downward. C- risk that is biased downward and returns that are biased upward.

The Investment Analysis, Recommendations, and Actions standard states that members and candidates must: A- find an investment suitable for their client before making a recommendation. B- make reasonable efforts to ensure that performance presentation is fair, accurate, and complete. C- distinguish between fact and opinion in the presentation of investment analysis and recommendations.

The NPV profiles of two projects will intersect: A- at their internal rates of return. B- if they have different discount rates. C- at the discount rate that makes their net present values equal.

The Responsibilities as a CFA Institute Member or CFA Candidate Standard explicitly states a requirement regarding: A- loyalty. B- responsibility of supervisors. C- reference to the CFA Program.

The absolute priority rule is most likely violated in a: A- bankruptcy liquidation. B- special purpose entity securitization. C- bankruptcy reorganization.

The assumption that an entity will continue to operate for the foreseeable future is called: A- accrual basis. B- comparability. C- going concern.

The belief that trends and patterns tend to repeat themselves and are, therefore, somewhat predictable best describes: A- arbitrage pricing theory. B- weak-form efficiency. C- technical analysis.

The business risk of a particular company is most accurately measured by the company's: A- debt-to-equity ratio. B- efficiency in using assets to generate sales. C- operating leverage and level of uncertainty about demand, output prices, and competition.

The carrying value of inventories reflects: A- their historical cost. B- their current value. C- the lower of historical cost or net realizable value.

The change in polarity principle most likely helps analysts determine a new: A- support level after a retracement to a lower high than a previous retracement. B- resistance level after an upward breakthrough of the trendline. C- Support level after a resistance level is breached.

The characteristic of national consumer price indexes which is most typically shared across major economies worldwide is: A- the geographic areas covered in their surveys. B- the weights they place on covered goods and services. C- their use in the determination of macroeconomic policy.

The choice of risk-modification method is based on: A- minimizing risk at the lowest cost. B- maximizing returns at the lowest cost. C- weighing costs versus benefits in light of the organization's risk tolerance.

The complex nature of derivatives has led to: A- reliable financial models of derivatives markets. B- widespread trust in applying scientific principles to derivatives. C- financial industry employment of mathematicians and physicists.

The component least likely to be included in a measurement of gross domestic product (GDP) is: A- the value of owner occupied rent. B- the annual salary of a local police officer. C- environmental damage caused by production.

The cost of debt can be determined using the yield-to-maturity and the bond rating approaches. If the bond rating approach is used, the: A- coupon is the yield. B- yield is based on the interest coverage ratio. C- company is rated and the rating can be used to assess the credit default spread of the company's debt.

The cost of which source of capital most likely requires adjustment for taxes in the calculation of a firm's weighted average cost of capital? A- Common stock B- Preferred stock C- Bonds

The covariance of returns is positive when the returns on two assets tend to: A- have the same expected values. B- be above their expected value at different times. C- be on the same side of their expected value at the same time.

The derivative markets tend to: A- transfer liquidity from the broader financial markets. B- not reflect fundamental value after it is restored in the underlying market. C- offer a less costly way to exploit mispricing in comparison to other free and competitive financial markets.

The effectiveness of a debt covenant in disciplining financial reporting quality is most often limited due to: A- ineffectiveness of financial triggers. B- reporting requirements that may not be legally binding. C- potential for managers to inflate earnings.

The effectiveness of infrastructure spending as a near-term fiscal stimulant would be least constrained by the: A- impact lag. B- action lag. C- recognition lag.

The elasticity of demand for a good is most likely greater when: A- a lesser proportion of income is spent on the good. B- the good is a necessity. C- the adjustment to a price change takes a longer time.

The factor considered by rating agencies when a corporation has debt at both its parent holding company and operating subsidiaries is best referred to as: A- credit migration risk. B- corporate family rating. C- structural subordination.

The factors a risk management framework should address include all of the following except: A- communications. B- policies and processes. C- names of responsible individuals.

The financial statement that would be most useful to an analyst in understanding the changes that have occurred in a company's retained earnings over a year is the statement of: A- comprehensive income. B- financial position. C- changes in equity.

The first step in cash flow statement analysis should be to: A- evaluate consistency of cash flows. B- determine operating cash flow drivers. C- identify the major sources and uses of cash.

The following information is available for a company that has just one type of capital asset on its balance sheet: Beginning Asset Net Book Value$1,000,000 Annual Revenue$15,000,000 Annual EBITDA$1,600,000 If during the year the estimated useful life of this asset is reduced from six to four years, and the company uses straight-line depreciation, this change in estimate will most likely result in a higher: A- operating profit margin. B- operating return on assets. C- total asset turnover ratio.

The full employment, or natural, level of output is best described as: A- the maximum level obtainable with existing resources. B- the level at which all available workers have jobs consistent with their skills. C- a level with a modest, stable pool of unemployed workers transitioning to new jobs.

The government of a country whose financial markets are in an early stage of development has hired you as a consultant on financial market regulation. Your first task is to prepare a list of the objectives of market regulation. Which of the following is least likely to be included in this list of objectives? A- Minimize agency problems in the financial markets. B- Ensure that financial markets are fair and orderly. C- Ensure that investors in the stock market achieve a rate of return that is at least equal to the risk-free rate of return.

The income statement is best used to evaluate a company's: A- financial position. B- sources of cash flow. C- financial results from business activities.

The industry that is classified the more cyclical sector under a commercial industry classification scheme is: A- personal care products. B- food. C- apparel.

The information provided by a low-quality financial report will most likely: A- decrease company value. B- indicate earnings are not sustainable. C- impede the assessment of earnings quality.

The intercept of the best fit line formed by plotting the excess returns of a manager's portfolio on the excess returns of the market is best described as Jensen's: A- beta. B- ratio. C- alpha.

The internal rate of return (IRR) is best described as the: A- opportunity cost of capital. B- time-weighted rate of return. C- discount rate that makes the net present value equal to zero.

The inventory/sales ratio is most likely to be rising: A- as a contraction unfolds. B- partially into a recovery. C- near the top of an economic cycle.

The joint conceptual framework project of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) guides the development of standards that are best described as: A- integrated with local legal and economic norms. B- comprehensive, complex rules designed to increase uniformity. C- based on principles that limit the range of acceptable approaches.

The junior and senior tranches of an asset-backed security: A- have equivalent expected returns. B- have claims on separate underlying portfolios. C- may be differentially impacted by prepayments or credit losses.

The key to a CDO's viability is the creation of a structure with a competitive return for the: A- senior tranche. B- mezzanine tranche. C- subordinated tranche.

The last payment in a partially amortizing residential mortgage loan is best referred to as a: A- waterfall. B- principal repayment. C- balloon payment.

The law of one price is best described as: A- the true fundamental value of an asset. B- earning a risk-free profit without committing any capital. C- two assets that will produce the same cash flows in the future must sell for equivalent prices.

The least appropriate measure of risk for alternative investments is: A- value at risk(VaR). B- the Sortino ratio. C- variance of returns.

The least likely goal of a government's fiscal policy is to: A- redistribute income and wealth. B- influence aggregate national output. C- ensure the stability of the purchasing power of its currency.

The least likely item to be a requirement for good stakeholder management is: A- maintaining effective communication with other stakeholders. B- an understanding of the interests of several stakeholder groups. C- the ability to put aside the interests of one's stakeholder group.

The lognormal distribution is a more accurate model for the distribution of stock prices than the normal distribution because stock prices are: A- symmetrical. B- unbounded. C- non-negative.

The longest-term tranche of a sequential-pay CMO is most likely to have the lowest: A- average life. B- extension risk. C- contraction risk.

The management of Bank EZ repurchases its own bonds in the open market. They pay €6.5 million for bonds with a face value of €10.0 million and a carrying value of €9.8 million. The bank will most likely report: A- other comprehensive income of €3.3 million. B- other comprehensive income of €3.5 million. C- a gain of €3.3 million on the income statement.

The market value of equity for a company can be calculated as enterprise value: A- minus market value of debt, preferred stock, and short-term investments. B- plus market value of debt and preferred stock minus short-term investments. C- minus market value of debt and preferred stock plus short-term investments.

The method used by a high-end custom-built motorcycle manufacturer to value its inventory results in the matching of the physical flow of the particular items sold, and the items remaining in inventory, to their actual cost. Which of the following inventory valuation methods is the manufacturer most likely using? A- FIFO B- Weighted average cost C- Specific identification

The monetary authority of The Stoddard Islands will exchange its currency for U.S. dollars at a one-for-one ratio. As a result, the exchange rate of the Stoddard Islands currency with the U.S. dollar is 1.00, and many businesses in the Islands will accept U.S. dollars in transactions. This exchange rate regime is best described as: A- a fixed peg. B- dollarization. C- a currency board.

The most likely costs included in both the cost of inventory and property, plant, and equipment are: A- selling costs. B- storage costs. C- delivery costs.

The net present value (NPV) of an investment is equal to the sum of the expected cash flows discounted at the: A- internal rate of return. B- risk-free rate. C- opportunity cost of capital.

The nominal risk-free rate is best described as the sum of the real risk-free rate and a premium for: A- maturity. B- liquidity. C- expected inflation.

The notching adjustment for corporate bonds rated Aa2/AA is most likely: A- larger than the notching adjustment for corporate bonds rated B2/B. B- the same as the notching adjustment for corporate bonds rated B2/B. C- smaller than the notching adjustment for corporate bonds rated B2/B.

The portfolio on the minimum-variance frontier with the lowest standard deviation is: A- unattainable. B- the optimal risky portfolio. C- the global minimum-variance portfolio.

The price of a forward or futures contract: A- is typically zero at initiation. B- is equal to the spot price at settlement. C- remains the same over the term of the contract.

The probability of an event given that another event has occurred is a: A- joint probability. B- marginal probability. C- conditional probability.

The process of risk management includes: A- minimizing risk. B- maximizing returns. C- defining and measuring risks being taken.

The publisher of an index that includes 50 corporate bonds removes from the index three bonds that are nearing maturity and one whose issuer has defaulted and selects four actively traded bonds to replace them in the index. This bond index is said to have been: A- redefined. B- rebalanced. C- reconstituted.

The purpose of debt covenants is best described as: A- limiting issuance costs. B- preventing technical default. C- protecting the interests of creditors.

The put-call-forward parity relationship least likely includes: A- a risk-free bond. B- call and put options. C- the underlying asset.

The ratio of a firm's property, plant, and equipment, net of accumulated depreciation, to its annual depreciation expense is best interpreted as an estimate of the: A- average age of the firm's assets. B- average useful life of the firm's assets. C- remaining useful life of the firm's assets.

The short-term shutdown point of production for a firm operating under perfect competition will most likely occur when: A- price is equal to average total cost. B- marginal revenue is equal to marginal cost. C- marginal revenue is equal to average variable costs.

The slope of the security market line is best derived from the: A- risk-free rate of return. B- beta of the security. C- market risk premium.

The spread component of a specific bond's yield-to-maturity is least likely impacted by changes in: A- its tax status. B- its quality rating. C- inflation in its currency of denomination.

The sum of an asset's systematic variance and its nonsystematic variance of returns is equal to the asset's: A- beta. B- total risk. C- total variance.

The term that describes when inflation declines but nonetheless remains at a positive level is: A- deflation. B- stagflation. C- disinflation.

The time-weighted rate of return: A- results in a lower return when compared with the money-weighted rate of return. B- is affected by the amount and timing of cash flows to and from a portfolio. C- calculates multi-period cash flows mirroring a portfolio's compound growth rate.

The total number of parameters that fully characterizes a multivariate normal distribution for the returns on two stocks is: A- 3. B- 4. C- 5.

The treasury manager of a large company has recently left his position to accept a promotion with a competitor six months from now. A statistical employment survey conducted now should categorize the status of the former treasury manager as: A- underemployed. B- voluntarily unemployed. C- frictionally unemployed.

The type of real estate index that most likely exhibits sample selection bias is: A- REIT index. B- appraisal index. C- repeat sales index.

The type of voting that is most likely to allow minority stockholders a greater representation on the board of directors is: A- majority voting. B- staggered voting. C- cumulative voting.

The unemployment rate is considered a lagging indicator because: A- new job types must be defined to count their workers. B- multi-worker households change jobs at a slower pace. C- businesses are slow to hire and fire due to related costs.

The valuation technique under which assets are recorded at the amount that would be received in an orderly disposal is: A- current cost. B- present value. C- realizable value.

Three companies in the same industry are identical except in how they account for inventory: One uses first-in, first-out (FIFO), another uses last-in, first-out (LIFO), and the third uses weighted average cost. Although the industry experienced increasing prices in prior years, a recent technological breakthrough has substantially reduced the value of the companies' inventories, and each company will face inventory write-downs. Which of the reporting methods will most likely lead to the smallest write-down? A- FIFO B- weighted average cost C- LIFO

To better evaluate the solvency of a company, an analyst would most likely add to total liabilities: A- the present value of future capital lease payments. B- the total amount of future operating lease payments. C- the present value of future operating lease payments.

To compute tangible book value, an analyst would: A- add goodwill to stockholders' equity. B-Badd all intangible assets to stockholders' equity. C- subtract all intangible assets from stockholders' equity.

To determine the price of an option today, the binomial model requires: A- selling one put and buying one offsetting call. B- buying one unit of the underlying and selling one matching call. C- using the risk-free rate to determine the required number of units of the underlying.

To identify intermarket relationships, technicians commonly use: A- stochastic oscillators. B- Fibonacci ratios. C- relative strength analysis.

Total revenue is greatest in the part of a demand curve that is: A- elastic B- inelastic C- unitelastic.

Two bonds are similar in all respects except maturity. Can the shorter-maturity bond have greater interest rate risk than the longer-term bond? A- No, because the shorter-maturity bond will have a lower duration. B- Yes, because the shorter-maturity bond may have a higher duration. C- Yes, because short-term yields can be more volatile than long-term yields

Under US GAAP, when assets are acquired in a business combination, goodwill most likely arises from: A- contractual or legal rights. B- assets that can be separated from the acquired company. C- assets that are neither tangible nor identifiable intangible assets.

Under US GAAP, which of the following is least likely a disclosure concerning inventory? A- The amount of inventories recognized as an expense during the period B- The carrying amounts of inventories carried at fair value less costs to sell C- The amount of the reversal of any write-down of inventories

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.

Under what circumstances could a client possibly win a lawsuit against a financial adviser despite the financial adviser abiding by all regulatory and legal requirements? A- The adviser benefiting more from the relationship than the client B- The adviser not being subject to a code of ethics C- The adviser violating his employer's published code of ethics

Unrealized gains and losses on securities categorized as available-for-sale: A- do not affect shareholders' equity. B- affect the profit and loss statement as unrealized holding gains or losses. C- affect shareholders' equity through other comprehensive income

Upsilon Natural Gas, Inc. is a monopoly enjoying very high barriers to entry. Its marginal cost is $40 and its average cost is $70. A recent market study has determined the price elasticity of demand is 1.5. The company will most likely set its price at: A- $40. B- $70. C- $120.

Using the straight-line method of depreciation for reporting purposes and accelerated depreciation for tax purposes would most likely result in a: A- valuation allowance. B- deferred tax asset. C- temporary difference.

Venture capital investments: A- can be publicly traded. B- do not require a long-term commitment of funds. C- provide mezzanine financing to early-stage companies.

What is most likely a critical aspect of the Consider phase of an ethical decision-making framework? A- Distinguishing duties to stakeholders B- Contemplating your decision C- Seeking additional guidance

What is the most important effect of labor productivity in a cost-push inflation scenario? A- Rising productivity indicates a strong economy and a bias towards inflation. B- The productivity level determines the economy's status relative to its "natural rate of unemployment." C- As productivity growth proportionately exceeds wage increases, product price increases are less likely.

What type of audit opinion is preferred when analyzing financial statements? A- Qualified. B- Adverse. C- Unqualified.

When a regulatory agency requires a monopolist to use average cost pricing, the intent is to price the product where: A- the ATC curve intersects the MR curve. B- the MR curve intersects the demand curve. C- the ATC curve intersects the demand curve.

When accounting standards require recognition of an expense that is not permitted under tax laws, the result is a: A- deferred tax liability. B- temporary difference. C- permanent difference.

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.

When an investment advisor is developing return and risk objectives for a client: A- return objectives should be absolute and risk objectives should be relative. B- risk objectives should be absolute and return objectives should be relative. C- both return and risk objectives may be stated in absolute or relative terms.

When analyzing a head and shoulders pattern that represents the reversal of an upward trend, the highest trading volume is most likely on the upward side of the: A- right shoulder. B- head. C- left shoulder.

When both the timing and amount of tax payments are uncertain, analysts should treat deferred tax liabilities as: A- equity. B- liabilities. C- neither liabilities nor equity.

When certain expenditures result in tax credits that directly reduce taxes, the company will most likely record: A- a deferred tax asset. B- a deferred tax liability. C- no deferred tax asset or liability.

When comparing a firm that uses LIFO inventory accounting to firms that use FIFO, an analyst should: A- subtract the LIFO reserve from cost of sales. B- add the change in the LIFO reserve to inventories. C- subtract the change in the LIFO reserve from cost of sales.

When considering two mutually exclusive capital budgeting projects with conflicting rankings, the most appropriate conclusion is to choose the project with the: A- shorter payback. B- higher internal rate of return (IRR). C- higher net present value (NPV).

When dealing with mutually exclusive projects, the most reliable decision rule is: A- time-weighted rate of return. B- IRR. C- NPV.

When testing a hypothesis, the power of a test is best described as the: A- same as the level of significance of the test. B- probability of rejecting a true null hypothesis. C- probability of correctly rejecting the null hypothesis.

When the economy is operating at the natural rate of unemployment, it is most likely that: A- inflation is accelerating. B- frictional unemployment is absent. C- structural unemployment is present.

When the investor's investment horizon is less than the Macaulay duration of the bond she owns: A- the investor is hedged against interest rate risk. B- reinvestment risk dominates, and the investor is at risk of lower rates. C- market price risk dominates, and the investor is at risk of higher rates.

When the price of a good decreases, and an individual's consumption of that good also decreases, it is most likely that: A- the income effect and substitution effect are both negative. B- the substitution effect is negative and the income effect is positive. C- the income effect is negative and the substitution effect is positive.

When unethical behavior erodes trust in an investment firm, that firm is more likely to experience: A- lower revenues only. B- higher expenses only. C- lower revenues and higher expenses.

Which costs incurred with the purchase of property and equipment are expensed? A- Delivery charges B- Installation and testing C- Training required to use the property and equipment

Which date in the chronology of a dividend payment is most likely determined by a security exchange? A- Holder-of-record date B- Declaration date C- Ex-dividend date

Which factor is associated with a more favorable quality sovereign bond credit rating? A- Issued in local currency, only B- Strong domestic savings base, only C- Issued in local currency of country with strong domestic savings base

Which factor is most likely associated with stable market share? A- Low switching costs. B- Low barriers to entry. C- Slow pace of product innovation.

Which factor should most affect a company's ability to tolerate risk? A- A stable market environment B- The beliefs of the individual board members C- The ability to dynamically respond to adverse events

Which of the following accounting issues should mostly likely be considered a character warning flag in credit analysis? A- Expensing items immediately B- Changing auditors infrequently C- Significant off-balance-sheet financing

Which of the following approaches will most likely reveal manipulation of financial reporting? A- Using EBITDA to adjust for non-recurring items B- Evaluating potential warning signals in isolation C- Comparing a company's methods and policies to those of its peers

Which of the following best describes a function of the International Bank for Reconstruction and Development? A- Lending foreign currencies on a temporary basis to address balance of payment issues B- Regulating cross-border trade relationships on a global scale C- Providing low interest rate loans to developing countries

Which of the following best describes a negative bond covenant? The requirement to: A- insure and maintain assets. B- comply with all laws and regulations. C- maintain a minimum interest coverage ratio.

Which of the following best describes activities that are supported by a risk management infrastructure? A- Risk tolerance, budgeting, and reporting B- Risk tolerance, measurement, and monitoring C- Risk identification, measurement, and monitoring

Which of the following best describes an advantage of the EV/EBITDA multiple for valuing equity? An advantage is that: A- the multiple must be positive. B- it does not require the market value of debt. C- EBITDA is a proxy for operating cash flow.

Which of the following best describes how an analyst would estimate the expected value of a firm under the scenarios of bankruptcy and survivorship? The analyst would use: A- the addition rule. B- conditional expected values. C- the total probability rule for expected value.

Which of the following best describes the aggregate supply curve in the short-run (e.g., 1 to 2 years)? The short run aggregate supply curve is: A- flat because output is more flexible than prices in the short run. B- vertical because wages and other input prices fully adjust to the price level. C- upward sloping because input prices do not fully adjust to the price level in the short run.

Which of the following best describes the cash flow that owners of credit card receivable asset-backed securities receive during the lockout period? A- No cash flow B- Only principal payments collected C- Only finance charges collected and fees

Which of the following best describes the majority of the evidence regarding anomalies in stock returns? A- Weak-form market efficiency holds, but semi-strong form efficiency does not. B- Neither weak-form nor semi-strong form market efficiency holds. C- Reported anomalies are not violations of market efficiency but are the result of research methodologies.

Which of the following best describes the role of financial statement analysis? A- To provide information about a company's performance B- To provide information about a company's changes in financial position C- To form expectations about a company's future performance and financial position

Which of the following best describes why the notes that accompany the financial statements are required? The notes: A- permit flexibility in statement preparation. B- standardize financial reporting across companies. C- provide information necessary to understand the financial statements.

Which of the following best represents a contractionary fiscal policy? A- Public spending on a high-speed railway. B- A temporary suspension of payroll taxes. C- A freeze in discretionary government spending.

Which of the following bond types provides the most benefit to a bondholder when bond prices are declining? A- Callable B- Plain vanilla C- Multiple put

Which of the following changes in a firm's working capital management is most likely to result in a shorter operating cycle? A- Reducing stock-outs by carrying greater quantities of inventory. B- Stretching its payables by paying on the last permitted date. C- Changing its credit terms for customers from 2/10, net 60 to 2/10, net30.

Which of the following companies most likely has the greatest ability to quickly increase its capacity? A- Restaurant. B- Steel producer. C- Legal services provider.

Which of the following companies would most likely be considered to have the lowest financial reporting quality, other things equal? A- A company that provides high quality, decision-useful information under GAAP but delays its reports. B- A company that reports significant profits due to a favorable exchange rate movement. C- A company that reports the results from two different segments as a combined entity.

Which of the following conditions best explains why a company's manager would obtain legal, accounting, and board level approval prior to issuing low-quality financial reports? A- Motivation B- Opportunity C- Rationalization

Which of the following conditions is least likely to increase a country's GDP? A- An increase in net exports. B- Increased investment in capital goods. C- Increased government transfer payments.

Which of the following conditions is not required for the realized horizon yield to equal the original yield to maturity on an option-free, fixed-coupon bond? A- The coupon payments are reinvested at the same interest rate as the original yield to maturity. B- The bond is sold at a price on the constant-yield price trajectory. C- The bond is held to maturity.

Which of the following counterparties is most likely to be considered a sell-side foreign-exchange market participant? A- A large corporation that borrows in foreign currencies. B- A sovereign wealth fund that influences cross-border capital flows. C- A multinational bank that trades foreign exchange with its diverse client base.

Which of the following derivatives is classified as a contingent claim? A- Futures contracts B- Interest rate swaps C- Credit default swaps

Which of the following disclosures would least likely be found in the financial statement footnotes of a firm? A- Accumulated depreciation. B- Carrying values by asset class. C- Average age of assets.

Which of the following economic developments is most likely to cause cost-push inflation? A- Industrial capacity utilization rises to a very high level. B- Labor productivity increases faster than hourly labor costs. C- A shortage of trained workers emerges throughout the economy.

Which of the following embedded options most likely provides a right to the issuer? A- Conversion provision B- Put feature C- Call feature

Which of the following events is most likely to lead management to make biased accounting choices? A- Changing the company's fiscal year B- Changing the company's audit firm C- Changing the company's CEO

Which of the following events will most likely result in a decrease in a valuation allowance for a deferred tax asset under US GAAP? A(n): A- decrease in interest rates B- reduction in tax rates C- extension in the tax loss carry-forward period

Which of the following factors best explains why regional trading agreements are more popular than larger multilateral trade agreements? A- Minimal displacement costs. B- Trade diversions benefit members. C- Quicker and easier policy coordination.

Which of the following factors in credit analysis is more important for general obligation non-sovereign government debt than for sovereign debt? A- Per capita income B- Power to levy and collect taxes C- Requirement to balance an operating budget

Which of the following factors is most likely to lead to economies of scale? A- Supply constraints B- Duplication of product lines C- Specialization by workers

Which of the following factors is shared by forwards and futures contracts? A- Timing of profits B- Flexible settlement arrangements C- Nearly equivalent profits by expiration

Which of the following factors most likely explains why the spot price of a commodity in short supply can be greater than its forward price? A- Opportunity cost B- Lack of dividends C- Convenience yield

Which of the following factors would most likely be a limitation of applying business-cycle analysis to global industry analysis? A- Some industries are relatively insensitive to the business cycle. B- Correlations of security returns between different world markets are relatively low. C- One region or country of the world may experience recession while another region experiences expansion.

Which of the following financial reports are considered to be of the lowest quality? Financial reports that reflect: A- unsustainable earnings. B- biased accounting choices. C- departures from accounting principles.

Which of the following firms would be best classified as operating in a consumer discretionary industry? A- Tobacco manufacturer B- Biotechnology C- Hotel

Which of the following forms of infrastructure investments is the most liquid? A- An unlisted infrastructure mutual fund B- A direct investment in a greenfield project C- An exchange-traded master limited partnership (MLP)

Which of the following industry characteristics is generally least likely to produce high returns on capital? A- High barriers to entry B- High degree of concentration C- Short lead time to build new plants

Which of the following international trade bodies was the only multilateral body governing international trade from 1948 to 1995? A- World Trade Organization (WTO). B- International Trade Organization (ITO). C- General Agreement on Tariffs and Trade (GATT).

Which of the following inventory disclosures would least likely be found in the footnotes of a firm following IFRS? A- The amount of loss reversals, from previously written-down inventory, recognized during the period. B- The carrying value of inventories that collateralize a short-term loan. C- The separate carrying values of raw materials, work-in-process, and finished goods computed under the LIFO cost flow method.

Which of the following is a continuous random variable? A- The value of a futures contract quoted in increments of $0.05 B- The total number of heads recorded in 1 million tosses of a coin C- The rate of return on a diversified portfolio of stocks over a three-month period

Which of the following is a limitation on the ability of central banks to stimulate growth in periods of deflation? A- Ricardian equivalence. B- The interaction of monetary and fiscal policy. C- The fact that interest rates cannot fall significantly below zero.

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

Which of the following is a reversal pattern? A- Pennant. B- Rectangle. C- Double bottom.

Which of the following is a source of wholesale funds for banks? A- Demand deposits B- Money market accounts C- Negotiable certificates of deposit

Which of the following is an example of a financing activity on the cash flow statement under US GAAP? A- Payment of interest. B- Receipt of dividends. C- Payment of dividends.

Which of the following is an example of a style index? An index based on: A- geography. B- economic sector. C- market capitalization.

Which of the following is an example of an affirmative debt covenant? The borrower is: A- prohibited from entering into mergers. B- prevented from issuing excessive additional debt. C- required to perform regular maintenance on equipment pledged as collateral.

Which of the following is an indication that a company may be recognizing revenue prematurely? Relative to its competitors, the company's: A- asset turnover is decreasing. B- receivables turnover is increasing. C- days sales outstanding is increasing.

Which of the following is incorrect about the risk of an equity security? The risk of an equity security is: A- based on the uncertainty of its cash flows. B- based on the uncertainty of its future price. C- measured using the standard deviation of its dividends.

Which of the following is least accurate regarding fixed-income indexes? A- Replicating the return on a fixed-income security index is difficult for investors. B- There is a great deal of heterogeneity in the composition of fixed-income security indexes. C- Due to the large universe of fixed-income security issues, data for fixed-income securities are relatively easy to obtain.

Which of the following is least important as a reason for a written investment policy statement (IPS)? A- The IPS may be required by regulation. B- Having a written IPS is part of best practice for a portfolio manager. C- Having a written IPS ensures the client's risk and return objectives can be achieved.

Which of the following is least likely a feature typical of an agency residential mortgage-backed security (RMBS)? A- A guarantee by a government-sponsored enterprise B- The satisfaction of specific established underwriting standards C- The use of credit enhancements to reduce credit risk

Which of the following is least likely a form of internal credit enhancement used in a securitization? A- Subordination B- Overcollateralization C- Letter of credit

Which of the following is least likely a part of the execution step of the portfolio management process? A- Security analysis B- Portfolio construction C- Performance measurement

Which of the following is least likely a significant external influence on industry growth? A- Social influences. B- Macroeconomic factors. C- Supplier bargaining power.

Which of the following is least likely an example of a portfolio constraint? A- Higher tax rate on dividend income than on capital gains. B- Significant spending requirements in the near future. C- Minimum total return requirement of 8%.

Which of the following is least likely to be a reason for a company to issue equity securities on the primary market? A- To raise capital. B- To increase liquidity. C- To increase return on equity.

Which of the following is least likely to be considered an appropriate schedule for reviewing and updating an investment policy statement? A- At regular intervals (e.g.,every year) B- When there is a major change in the client's constraints. C- Frequently, based on the recent performance of the portfolio.

Which of the following is least likely to be disclosed in the financial statements of a bond issuer? A- The amount of debt that matures in each of the next five years. B- Collateral pledged as security in the event of default. C- The market rate of interest on the balance sheet date.

Which of the following is least likely to be placed in the appendices to an investment policy statement (IPS)? A- Rebalancing Policy. B- Strategic Asset Allocation. C- Statement of Duties and Responsibilities.

Which of the following is least likely to be required by the binomial option pricing model? A- Spot price B- Two possible prices one period later C- Actual probabilities of the up and down moves

Which of the following is least likely to involve industry analysis? A- Sector rotation strategy. B- Top-down fundamental investing. C- Tactical asset allocation strategy.

Which of the following is least likely to reduce substitution bias in a consumer price index? A- Use a chained index. B- Use a Paasche index. C- Adjust for the bias directly using hedonic pricing.

Which of the following is most likely a benefit of debt covenants for the borrower? A- Limitations on the company's ability to pay dividends B- Restrictions on how the borrowed money may be invested C- Reduction in the cost of borrowing

Which of the following is most likely a characteristic of a concentrated industry? A- Infrequent, tacit coordination. B- Difficulty in monitoring other industry members. C- Industry members attempting to avoid competition on price.

Which of the following statements about NPV and IRR is least accurate? A- The IRR can be positive even if the NPV is negative. B- When the IRR is equal to the cost of capital, the NPV will be zero. C- The NPV will be positive if the IRR is less than the cost of capital.

Which of the following is most likely a recommended procedure for complying with the Standard on performance presentation? A- Exclude terminated accounts from past performance history. B- Present the performance of a representative account to show how a composite has performed. C- Consider the level of financial knowledge of the audience to whom the performance is presented.

Which of the following is most likely a sign of inventory manipulation to improve reported financial results? A- Inventory markdowns for obsolescence. B- Declining inventory turnover ratio. C- Selective sales of older layers of inventory.

Which of the following is most likely an advantage of collateralized mortgage obligations (CMOs)? CMOs can A- eliminate prepayment risk. B- be created directly from a pool of mortgage loans. C- meet the asset/liability requirements of institutional investors.

Which of the following is most likely an advantage of the Herfindahl-Hirschman Index relative to the N-firm concentration ratio? The Herfindahl-Hirschman Index: A- is simpler to calculate. B- considers barriers to entry. C- is more sensitive to mergers.

Which of the following is most likely for a firm with high inventory turnover and lower sales growth than the industry average? The firm: A- is managing its inventory effectively. B- may have obsolete inventory that requires a write-down. C- may be losing sales by not carrying enough inventory.

Which of the following is most likely not an objective of financial statements? A- To provide information about the performance of an entity. B- To provide information about the financial position of an entity. C- To provide information about the users of an entity's financial statements.

Which of the following is most likely to be a characteristic of a Giffen good? Its: A- substitution effect is negative. B- demand curve slopes downward. C- income effect is negative.

Which of the following is not a characteristic of common equity? A- It represents an ownership interest in the company. B- Shareholders participate in the decision-making process. C- The company is obligated to make periodic dividend payments.

Which of the following is not a condition of an ideal currency regime? A- Fully convertible currencies. B- Fully independent monetary policy. C- Independently floating exchange rates.

Which of the following is not a momentum oscillator? A- MACD. B- Stochastic oscillator. C- Bollinger Bands.

Which of the following items is a non-GAAP financial measure? A- Net income after taxes B- Income from operations C- EBITDA

Which of the following items is most likely to appear near the top of the asset section in a liquidity-based presentation of a balance sheet? A- Land use rights B- Deferred revenue C- Marketable securities

Which of the following life-cycle phases is typically characterized by high prices? A- Mature. B- Growth. C- Embryonic.

Which of the following market indexes is likely to be rebalanced most frequently? An index that is: A- price weighted. B- value weighted. C- equal weighted.

Which of the following most accurately describes the relationship between liquidity and yield spreads relative to benchmark government bond rates? All else being equal, bonds with: A- less liquidity have lower yield spreads. B- greater liquidity have higher yield spreads. C- less liquidity have higher yield spreads.

Which of the following most likely has the highest priority claim in the event of default? A- Unsecured debt B- Subordinated debt C- Secured debt

Which of the following most likely results in an increase of owners' equity? A- Share repurchase B- Cash dividend C- New equity issuance

Which of the following options grants the holder the right to purchase the underlying prior to expiration? A- American-style put option B- European-style call option C- American-style call option

Which of the following organizations helps to keep global systemic risk under control by preventing contagion in scenarios such as the 2010 Greek sovereign debt crisis? A- World Bank Group (World Bank). B- World Trade Organization (WTO). C- International Monetary Fund (IMF).

Which of the following performance measures does not require the measure to be compared to another value? A- Sharpe ratio. B- Treynor ratio. C- Jensen's alpha.

Which of the following performance measures is consistent with the CAPM? A- M-squared. B- Sharpe ratio. C- Jensen's alpha.

Which of the following performance measures most likely relies on systematic risk as opposed to total risk when calculating a risk-adjusted return? A- Sharpe ratio B- M-squared C- Treynor ratio

Which of the following ratios would be most useful in determining a company's ability to cover its lease and interest payments? A- ROA. B- Total asset turnover. C- Fixed charge coverage.

Which of the following regulations will most likely contribute to market efficiency? Regulatory restrictions on: A- short selling. B- foreign traders. C- insiders trading with nonpublic information.

Which of the following represents a correct statement about the p-value? A- The p-value offers less precise information than does the rejection points approach. B- A larger p-value provides stronger evidence in support of the alternative hypothesis. C- A p-value less than the specified level of significance leads to rejection of the null hypothesis.

Which of the following risk premiums is most relevant in explaining the difference in yields between 30-year bonds issued by the US Treasury and 30-year bonds issued by a small private issuer? A- Inflation B- Maturity C- Liquidity

Which of the following sources of return is most likely exposed to interest rate risk for an investor of a fixed-rate bond who holds the bond until maturity? A- Capital gain or loss B- Redemption of principal C- Reinvestment of coupon payments

Which of the following statements about capital structure and leverage is most accurate? A- Financial leverage is directly related to operating leverage. B- Increasing the corporate tax rate will not affect capital structure decisions. C- A firm with low operating leverage has a small proportion of its total costs in fixed costs.

Which of the following statements about commercial and government industry classification systems is most accurate? A- Many commercial classification systems include private for-profit companies. B- Both commercial and government classification systems exclude not-for-profit companies. C- Commercial classification systems are generally updated more frequently than government classification systems.

Which of the following statements about company analysis is most accurate? A- The complexity of spreadsheet modeling ensures precise forecasts of financial statements. B- The interpretation of financial ratios should focus on comparing the company's results over time but not with competitors. C- The corporate profile would include a description of the company's business, investment activities, governance, and strengths and weaknesses.

Which of the following statements about duration is correct? A bond's: A- effective duration is a measure of yield duration. B- modified duration is a measure of curve duration. C- modified duration cannot be larger than its Macaulay duration (assuming a positive yield-to-maturity).

Which of the following statements about environmental, social, and governance (ESG) in investment analysis is correct? A- ESG factors are strictly intangible in nature. B- ESG terminology is easily distinguishable among investors. C- Environmental and social factors have been adopted in investment analysis more slowly than governance factors.

Which of the following statements about exchange-traded derivatives is least accurate? Exchange-traded derivatives: A- are liquid. B- are standardized contracts. C- carry significant default risk.

Which of the following statements about hypothesis testing is correct? A- The null hypothesis is the condition a researcher hopes to support. B- The alternative hypothesis is the proposition considered true without conclusive evidence to the contrary. C- The alternative hypothesis exhausts all potential parameter values not accounted for by the null hypothesis.

Which of the following statements best describes the relationship between pricing power and ease of entry and exit? Greater ease of entry: A- and greater ease of exit decrease pricing power. B.- and greater ease of exit increase pricing power. C- decreases pricing power and greater ease of exit increases pricing power.

Which of the following statements best describes the role of the International Organization of Securities Commissions (IOSCO)? The IOSCO A- is the oversight body to which the International Accounting Standards Board (IASB) reports. B- is responsible for regulating financial markets of member nations. C- assists in attaining the goal of cross-border cooperation in combating violations of securities laws.

Which of the following statements best represents information discovery in the futures market? A- The futures price is predictive. B- Information flows more slowly into the futures market than into the spot market. C- The futures market reveals the price that the holder of the asset can take to avoid uncertainty.

Which of the following statements is correct with respect to the p-value? A- It is a less precise measure of test evidence than rejection points. B- It is the largest level of significance at which the null hypothesis is rejected. C- It can be compared directly with the level of significance in reaching test conclusions.

Which of the following statements is least accurate? A- IFRS Foundation trustees appoint members of the IASB. B- The IASB is monitored by a board that includes the US SEC. C- IFRS Foundation trustees oversee the policy decisions of the FASB.

Which of the following statements is least accurate? A firm's free cash flow to equity (FCFE): A- is a measure of the firm's dividend-paying capacity. B- increases with an increase in the firm's net borrowing. C- is significantly affected by the amount of dividends paid by the firm.

Which of the following statements is least accurate? The efficient frontier is the set of all attainable risky assets with the: A- highest expected return for a given level of risk. B- lowest amount of risk for a given level of return. C- highest expected return relative to the risk-free rate.

Which of the following statements is least likely a limitation of relying on ratings from credit rating agencies? A- Credit ratings are dynamic. B- Firm-specific risks are difficult to rate. C- Credit ratings adjust quickly to changes in bond prices.

Which of the following statements is most accurate regarding cash flow statements? A- Under IFRS, the indirect method of preparation is encouraged. B- Under IFRS, interest paid can be reported either as an operating or as an investing cash flow. C- Under US GAAP, bank overdrafts should be classified as a financing cash flow.

Which of the following statements is most accurate with respect to the jurisdiction underlying financial reporting? A- The requirement to prepare financial reports in accordance with specified accounting standards is the responsibility of standard-setting bodies. B- Regulatory authorities are typically private sector, self-regulated organizations. C- Standard-setting bodies have authority because they are recognized by regulatory authorities.

Which of the following statements is most accurate? A- Commodity indexes all share similar weighting methods. B- Commodity indexes containing the same underlying commodities offer similar returns. C- The performance of commodity indexes can be quite different from that of the underlying commodities.

Which of the following statements is most accurate? A- Non-controlling interest on the balance sheet represents a position the company owns in other companies. B- A classified balance sheet arises when in an auditor's opinion the financial statements materially depart from accounting standards and are not presented fairly. C- Treasury stock is non-voting and receives no dividends.

Which type of asset-backed security is not affected by prepayment risk? A- Auto loan ABSs B- Residential MBSs C- Credit card receivable ABSs

Which of the following statements is the best description of the characteristics of economic indicators? A- Leading indicators are important because they track the entire economy. B- Lagging indicators in measuring past conditions do not require revisions. C- A combination of leading and coincident indicators can offer effective forecasts.

Which of the following statements most accurately describes a derivative security? A derivative: A- always increases risk. B- has no expiration date. C- has a payoff based on an asset value or interest rate.

Which of the following statements most accurately describes a significant difference between a monopoly firm and a perfectly competitive firm? A perfectly competitive firm: A- minimizes costs; a monopolistic firm maximizes profit. B- maximizes profit; a monopolistic firm maximizes price. C- takes price as given; a monopolistic firm must search for the best price.

Which of the following statements most accurately describes the IRR and NPV methods? A- A project's NPV may be positive even if the IRR is less than the cost of capital. B- If the NPV and IRR methods give conflicting decisions for mutually exclusive projects, the IRR decision should be used to select the project. C- The NPV method assumes that a project's cash flows will be reinvested at the cost of capital, while the IRR method assumes they will be reinvested at the IRR.

Which of the following statements on fintech's use of data as part of risk analysis is correct? A- Stress testing requires precise inputs and excludes qualitative data. B- Machine learning ensures that traditional and alternative data are fully segregated. C- For real-time risk monitoring, data may be aggregated for reporting and used as model inputs.

Which of the following statements regarding balance sheets is correct? A- Equity equals the market value of assets minus the market value of liabilities. B- Liabilities are measured over a specific period of time rather than at a specific point in time. C- Some assets are presented on a historical cost basis, while others are presented on a current value basis.

Which of the following statements regarding corporate shareholders is most accurate? A- Cross-shareholdings help promote corporate mergers. B- Dual-class structures are used to align economic ownership with control. C- Affiliated shareholders can protect a company against hostile takeover bids.

Which of the following statements regarding indexes for alternative investments is most accurate? A- Commodity index returns are based on changes in the prices of the underlying commodities. B- Commodity indexes consist of a market-weighted basket of one or more specific commodities. C- Hedge funds determine whether their results will be included in an index.

Which of the following statements regarding the interest rate risk of a fixed-rate bond is correct? A- Coupon reinvestment risk and market price risk are positively related. B- All investors in a particular bond are exposed to the same interest rate risk. C- Market price risk matters more than coupon reinvestment risk when the investor's time horizon is short relative to the bond's time to maturity.

Which of the following statements regarding the settlement of forward contracts is correct? A- Contract settlement by cash has different economic effects from those of a settlement by delivery. B- Non-deliverable forwards and contracts for differences have distinct settlement procedures. C- At cash settlement, when the long party acquires the asset in the market, it effectively pays the forward price.

Which of the following statements related to the derecognition of debt is correct? A- Under US GAAP, debt issuance costs are accounted for as bonds payable. B- Under IFRS, debt issuance costs are excluded from the carrying amount. C- Under US GAAP, any unamortized debt issuance costs must be written off at the time of redemption.

Which of the following statements relating to commercial paper is most accurate? A- There is no secondary market for trading commercial paper. B- Only the strongest, highly rated companies issue commercial paper. C- Commercial paper is a source of interim financing for long-term projects.

Which of the following stock screens is most likely to identify stocks with high earnings growth rates? A- Dividend payout ratio greater than 30%. B- Price to cash flow per share ratio less than 12. C- Book value to market value ratio less than 25%.

Which of the following tax definitions is least accurate? A- Taxable income is income based on the rules of the tax authorities. B- Taxes payable are the amount due to the government. C- Pretax income is income tax expense divided by one minus the statutory tax rate.

Which of the following three bonds (similar except for yield and maturity) has the least Macaulay duration? A bond with: A- 5% yield and 10-year maturity. B- 5% yield and 20-year maturity. C- 6% yield and 10-year maturity.

Which of the following trade restrictions is likely to result in the greatest welfare loss for the importing country? A- A tariff. B- An import quota. C- A voluntary export restraint.

Which of the following types of investment clients most likely have the lowest liquidity needs? A- Insurance companies B- Banks C- Endowments and foundations

Which of the following types of risk is most likely avoided by forming a diversified portfolio? A- Total risk. B- Systematic risk. C- Nonsystematic risk.

Which of the following, holding all else constant, will most likely increase the width of the confidence interval for a parameter estimate? A- Reduction in the degree of confidence B- Increase in the sample size C- Use of the t-distribution rather than the normal distribution to establish the confidence interval

Which of these return metrics is defined as excess return per unit of systematic risk? A- Sharpe ratio. B- Jensen's alpha. C- Treynor measure.

Which one of the following statements is most accurate? Under the liability method of accounting for deferred taxes, a decrease in the tax rate at the beginning of the accounting period will: A- increase taxable income in the current period. B- increase a deferred tax asset. C- reduce a deferred tax liability.

With respect to efficient markets, a company whose share price reacts gradually to the public release of its annual report most likely indicates that the market where the company trades is: A- semi-strong-form efficient. B- subject to behavioral biases. C- receiving additional information about the company.

With respect to present value models, which of the following statements is most accurate? A- Present value models can be used only if a stock pays a dividend. B- Present value models can be used only if a stock pays a dividend or is expected to pay a dividend. C- Present value models can be used for stocks that currently pay a dividend, are expected to pay a dividend, or are not expected to pay a dividend.

With respect to the mean-variance theory, the optimal portfolio is determined by each individual investor's: A- risk-free rate. B- borrowing rate. C- risk preference.

With respect to the portfolio management process, the asset allocation is determined in the: A- planning step. B- feedback step. C- execution step.

With respect to trading costs, liquidity is least likely to impact the: A- stock price. B- bid-ask spreads. C- brokerage commissions.

With respect to utility theory, the most risk-averse investor will have an indifference curve with the: A- most convexity. B- smallest intercept value. C- greatest slope coefficient.

Zet Bank has entered into a contract with Louly Corporation in which Zet agrees to buy a 2.5% US Treasury bond maturing in 10 years and promises to sell it back next month at an agreed-on price. From Zet Bank's perspective, this contract is best described as a: A- repo. B- collateralized loan. C- reverse repo.

Zhenhu Li has submitted an immediate-or-cancel buy order for 500 shares of a company at a limit price of CNY 74.25. There are two sell limit orders standing in that stock's order book at that time. One is for 300 shares at a limit price of CNY 74.30 and the other is for 400 shares at a limit price of CNY 74.35. How many shares in Li's order would get cancelled? A- None (the order would remain open but unfilled). B- 200 (300 shares would get filled). C- 500 (there would be no fill).

Zimt AG wrote down the value of its inventory in 2017 and reversed the write-down in 2018. Compared to the ratios that would have been calculated if the write-down had never occurred, Zimt's reported 2017: A- current ratio was too high. B- gross margin was too high. C- inventory turnover was too high.

limitation of Monte Carlo simulation is: A- its failure to do "what if" analysis. B- that it requires historical records of returns C- its inability to independently specify cause-and-effect relationships.

A company increasing its credit terms for customers from 1/10, net 30 to 1/10, net 60 will most likely experience: A- an increase in cash on hand. B- a higher level of uncollectible accounts. C- an increase in the average collection period.

C A higher level of uncollectible accounts may occur, but a longer average collection period will certainly occur.

Which combination of depreciation methods and useful lives is most conservative in the year a depreciable asset is acquired? A- Straight-line depreciation with a short useful life. B- Declining balance depreciation with a long useful life. C- Declining balance depreciation with a short useful life.

C This would result in the highest amount of depreciation in the first year and hence the lowest amount of net income relative to the other choices.

What is the risk measure associated with the capital market line (CML)? A- Beta risk. B- Unsystematic risk. C- Total risk.

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