CFA Level 1 Sample Questions

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A client can choose between receiving 10 annual $100,000 retirement payments, starting one year from today, or receiving a lump sum today. Knowing that he can invest at a rate of 5 percent annually, he has decided to take the lump sum. What lump sum today will be equivalent to the future annual payments?

772173.49

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.

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.

If a particular accounting choice is considered aggressive in nature, then the financial performance for the current period would most likely: A be neutral. B exhibit an upward bias. C exhibit a downward bias.

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.

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.

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 outcome of a long-term contract can be measured reliably, the preferred accounting method under both IFRS and US GAAP is: A the cost recovery method. B the completed contract method. C the percentage-of-completion method.

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 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.

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.

Increased household wealth will most likely cause an increase in: A household saving. B investment expenditures. C consumption expenditures.

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

The type of bank that is exclusively owned by its members is a: A savings and loan bank B commercial bank C mutual bank

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 add all intangible assets to stockholders' equity. C subtract all intangible assets from stockholders' equity.

Using the dividend discount model, what is the cost of equity capital for Zeller Mining if the company will pay a dividend of C$2.30 next year, has a payout ratio of 30 percent, a return on equity (ROE) of 15 percent, and a stock price of C$45? A 9.61 percent. B 10.50 percent. C 15.61 percent.

What type of audit opinion is preferred when analyzing financial statements? A Qualified. B Adverse. C Unqualified.

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.

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

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

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.

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.

A sample of five students scored 75%, 86%, 92%, 63%, and 52% on a test. The standard deviation of the sample is closest to: A 14.65% B 16.38% C 13.10%

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.

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

The value of a European call option is inversely related to the: A exercise price. B time to expiration. C volatility of the underlying.

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.

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)

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.

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.

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.

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

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.

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 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.

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

Compared with passive investment management, active investment management will involve: A tracking a benchmark B market timing C lower transaction costs

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.

A 223-day T-bill with a maturity value of $100,000 has a bank discount yield of 2.05%. The bill's holding period yield is closest to: A 1.29%. B 2.08%. C 2.11%.

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.

At which stage in the trading process is cash exchanged for securities between parties in a given security trade? A Settlement B Confirmation C Clearing

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 haveprepayment penalty points.

Currently, the market in a stock is "$54.62 bid, offered at $54.71." A new sell limit order is placed at $54.62. This limit order is said to: A take the market. B make the market. C make a new market.

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

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.

Emanuel purchases 130 shares of Hilton Pharmaceuticals on margin for $45 per share. She sells her shares after one year for $52 per share. The following information is also available: - Dividend received on the stock = $0.5 per share - Commission paid = $0.15 per share - Leverage ratio = 2.5 - Call money rate = 6.5% Government bill rate = 6% The total return on Emanuel's investment is closest to: A 30.00%. B 15.56%. C 24.62%

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

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 lump sum investment of ¥250,000 invested at a stated annual rate of 3% compounded daily, the number of months needed to grow the sum to ¥1,000,000 is closest to: A 555. B 563. C 576.

For a sample size of 65 with a mean of 31 taken from a normally distributed population with a variance of 529, a 99% confidence interval for the population mean will have a lower limit closest to: A 23.64. B 25.41. C 30.09.

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.

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.

From the beginning to the ending years of a decade, the annual value of final goods and services for country X increased from €100 billion to €300 billion. Over that time period, the GDP deflator increased from 111 to 200. Over the decade, real GDP for country X increased by approximately: A 50%. B 67%. C 200%.

Funds from operations (FFO) for a REIT are most likely calculated as: A Net income plus depreciation less gains from sales of real estate plus losses from sales of real estate. B Net income plus depreciation less capital expenditures. C Net income less gains from sales of real estate plus losses from sales of real estate.

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 com- pared to 2010, most likely: A improved. B worsened. C remained the same.

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 a stated annual interest rate of 6% compounded quarterly, the level amount that, deposited quarterly, will grow to £25,000 at the end of 10 years is closest to: A £461. B £474. C £836.

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.

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 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 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 con- tract 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.

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

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

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

Relative to domestic and foreign bonds, Eurobonds are most likely to be: A bearer bonds. B registered bonds. C subject to greater regulation.

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 stringent test of a company's liquidity is its: A cash ratio. B quick ratio. C current ratio.

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 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 possibility that a portfolio manager will lose money because the bond valuation model he uses is flawed is an example of: A operational risk B investment risk C compliance risk

The price of a stock at t = 0 is $208.25 and at t = 1 is $186.75. The continuously compounded rate of return for the stock from t = 0 to t = 1 is closest to: A -10.90%. B -10.32%. C 11.51%.

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.

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.

Which of the following is most likely regarding the Stackelberg oligopoly model? A Firms in the industry make their decisions sequentially. B None of the firms in the industry can increase profits by unilaterally changing its price. C All firms in the industry are interdependent.

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.

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.

You are considering investing in two different instruments. The first instrument will pay nothing for three years, but then it will pay $20,000 per year for four years. The second instrument will pay $20,000 for three years and $30,000 in the fourth year. All payments are made at year-end. If your required rate of return on these investments is 8 percent annually, what should you be willing to pay for: A The first instrument? B The second instrument (use the formula for a four-year annuity)?

A 52585.46 B 73592.84

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.

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 most likely results 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 investment pays €300 annually for five years, with the first payment occurring today. The present value (PV) of the investment discounted at a 4% annual rate is closest to: A €1,336. B €1,389. C €1,625.

Ash Lawn Partners, a fund of hedge funds, has the following fee structure: 2/20 underlying fund fees with incentive fees calculated independently Ash Lawn fees are calculated net of all underlying fund fees 1% management fee (based on year-end market value) 10% incentive fee calculated net of management fee The fund and all underlying funds have no hurdle rate or high-water mark fee conditions In the latest year, Ash Lawn's fund value increased from $100 million to $133 million before deduction of management and incentive fees of the fund or underlying funds. Based on the information provided, the total fee earned by all funds in the aggregate is closest to: A $11.85 million. B $12.75 million. C $12.87 million.

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.

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.

Comte Industries issues $3,000,000 worth of three-year bonds dated 1January 2015. The bonds pay interest of 5.5% annually on 31 December. The market interest rate on bonds of comparable risk and term is 5%. The sales proceeds of the bonds are $3,040,849. Under the straight-line method, the interest expense in the first year is closest to: A $150,000. B $151,384. C $152,042.

Consider the following statements: Statement 1: The coupon rate and principal amount on a capital‐indexed bond increases with a specified index. Statement 2: In a Bermuda‐style call, the issuer has the right to call bonds on specified dates following the call protection period. Which of the following is most likely? A Only Statement 1 is correct. B Only Statement 2 is correct. C Both statements are correct.

Credit yield spreads most likely widen in response to: A high demand for bonds. B weak performance of equities. C strengthening economic conditions.

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.

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 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.

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.

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 a sample size of 17, with a mean of 116.23 and a variance of 245.55, the width of a 90% confidence interval using the appropriate t-distribution is closest to: A 13.23. B 13.27. C 13.68.

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

If Mexico is running a large current account deficit with Canada, which of the following will most likely occur? A Canada will reduce its imports from Mexico B The Mexican peso will depreciate relative to the Canadian dollar C There will be an increase in Canadian exports to Mexico

If a company is liquidated, proceeds from asset sales are distributed to common shareholders: A before unsecured debt investor and preferred shareholder, claims are paid B after secured debt investor and preferred shareholder, claims are paid C after preferred shareholder claims are paid but before unsecured debt investor claims are paid

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 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 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 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 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 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.

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 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.

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.

Jason Williams purchased 500 shares of a company at $32 per share. The stock was bought on 75 percent margin. One month later, Williams had to pay interest on the amount borrowed at a rate of 2 percent per month. At that time, Williams received a dividend of $0.50 per share. Immediately after that he sold the shares at $28 per share. He paid commissions of $10 on the purchase and $10 on the sale of the stock. What was the rate of return on this investment for the one-month period? A −12.5 percent. B -15.4 percent. C -50.1 percent.

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.

Myundia Motors now sells 1 million units at ¥3,529 per unit. Fixed operating costs are ¥1,290 million and variable operating costs are ¥1,500 per unit. If the company pays ¥410 million in interest, the levels of sales at the operating breakeven and breakeven points are, respectively: A ¥1,500,000,000 and ¥2,257,612,900. B ¥2,243,671,760 and ¥2,956,776,737. C ¥2,975,148,800 and ¥3,529,000,000.

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.

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.

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.

Stewart has been hired by Goodner Industries, Inc., to manage its pension fund. Stewart's duty of loyalty, prudence, and care is owed to: A The management of Goodner. B The participants and beneficiaries of Goodner's pension plan. C The shareholders of Goodner.

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 company has a current ratio of 2.5 times and a quick ratio of 1.5 times. If the company's current liabilities are €100 million, the amount of inventory is closest to: A €50 million. B €100 million. C €150 million.

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

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 Gordon growth model can be used to value dividend-paying companies that are: A expected to grow very fast. B in a mature phase of growth. C very sensitive to the business cycle.

The JPY/AUD spot exchange rate is 82.42, the JPY interest rate is 0.15%, and the AUD interest rate is 4.95%. If the interest rates are quoted on the basis of a 360- day year, the 90-day forward points in JPY/AUD would be closest to: A -377.0. B -97.7. C 98.9.

The NPV profile of Project A is steeper than that of Project B. Which of the following is most likely that the crossover point occurs at an NPV of $5,000? A Project B has higher total cash inflows. B Project A receives most of its cash flows later in its life. C Project A has a higher IRR.

The annual yield-to-maturity, stated for with a periodicity of 12, for a 4-year, zero-coupon bond priced at 75 per 100 of par value is closest to: A 6.25%. B 7.21%. C 7.46%.

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.

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 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 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 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 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 of the following actions taken by a central bank is expansionary? A Increasing the reserve requirement B The purchase of government bonds C Increasing its policy rate

Which of the following approaches is least likely to be used in determining a company's cost of debt? A Yield to maturity approach B Pure‐play approach C Debt rating approach

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

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 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 bonds contains an embedded option that provides the issuer certain rights? A Putable bond B Callable bond C Convertible bond

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

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 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 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 considered an institutional investor? (a) Accredited investor (b) Sovereign wealth fund (c) Separately managed account

Which of the following is least likely a reason for the creation of GIPS Standards? A To remove the effects of survivorship bias B To prevent firms from presenting the performance of all portfolios under management C To ensure that performance is presented consistently over a period of time

Which of the following is least likely a violation of Standard I (D): Misconduct? A Engaging in frequent fights on the trading floor B Offering higher-quality services to certain clients C Getting intoxicated during office hours

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 not a real estate index category? A Appraisal index. B Initial sales index. C Repeat sales index.

Which of the following statements about desirable attributes of accounting standards boards is most accurate? Accounting standards boards should: A concede to political pressures. B be guided by a well articulated framework. C be adequately funded by companies to which the standards apply.

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

William Jones is evaluating three possible means of borrowing $1 million for one month: - Drawing down on a line of credit at 7.2 percent with a 1/2 percent commitment fee on the full amount with no compensating balances. - A banker's acceptance at 7.1 percent, an all-inclusive rate. - Commercial paper at 6.9 percent with a dealer's commission of 1/4 percent and a backup line cost of 1/3 percent, both of which would be assessed on the $1 million of commercial paper issued. Which of these forms of borrowing results in the lowest cost of credit? A Line of credit. B Banker's acceptance. C Commercial paper.

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 floating-rate bonds, a reference rate such as the London inter- bank 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 the pricing of risk in capital market theory, which of the follow- ing statements is most accurate? A All risk is priced. B Systematic risk is priced. C Nonsystematic risk is priced.

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 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 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 central bank will most likely allow the economy to self-correct in periods of: A high inflation, fast economic growth, and low unemployment. B low inflation, slow economic growth, and high unemployment. C high inflation, slow economic growth, and high unemployment.

A company has issued a floating-rate note with a coupon rate equal to the three-month Libor + 65 basis points. Interest payments are made quarterly on 31 March, 30 June, 30 September, and 31 December. On 31 March and 30 June, the three-month Libor is 1.55% and 1.35%, respectively. The coupon rate for the interest payment made on 30 June is: A 2.00%. B 2.10%. C 2.20%.

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.

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.

A company issues $30,000,000 face value of five-year bonds dated 1 January 2015 when the market interest rate on bonds of comparable risk and terms is 5%. The bonds pay 4% interest annually on 31 December. Based on the effective interest rate method, the carrying amount of the bonds on 31 December 2015 is closest to: A $28,466,099. B $28,800,000. C $28,936,215.

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

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 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 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 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 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 aver- age total cost curve.

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 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 limitation of the value at risk (VaR) approach to measuring risk is that it fails to specify: (a) the probability that a loss could occur (b) a time frame for potential losses (c) the maximum loss that could occur

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 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

A portfolio manager pays $99,500 for a 182-day US T-bill with face value of $100,000. The T-bill will be held to maturity. A yield of 0.5025% calculated for this T-bill when it is purchased is most accurately described as the: A bank discount yield. B money market yield. C holding period yield.

A potential advantage of leasing through a finance lease, compared with purchasing an asset, is most likely: A no effect on the balance sheet. B no reporting of interest expense. C reduced risk related to asset obsolescence.

A project's beta is least likely to be exposed to: A Business risk. B Financial risk. C Default risk.

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 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 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 sweepstakes winner may select either a perpetuity of £2,000 a month beginning with the first payment in one month or an immediate lump sum payment of £350,000. If the annual discount rate is 6% compounded monthly, the present value of the perpetuity is: A less than the lump sum. B equal to the lump sum. C greater than the lump sum.

A trader has purchased 200 shares of a non-dividend-paying firm on margin at a price of $50 per share. The leverage ratio is 2.5. Six months later, the trader sells these shares at $60 per share. Ignoring the interest paid on the borrowed amount and the transaction costs, what was the return to the trader during the six-month period? A 20 percent. B 33.33 percent. C 50 percent.

A well‐functioning securities market is least likely to: A Have low transaction costs. B Offer timely and accurate information on trading prices and volumes. C Be relatively illiquid.

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.

According to the CFA Institute Standards of Professional Conduct, which of the following must least likely be disclosed to clients? A Referral fees B Disclosures of personal holdings C Additional compensation earned by the member from tutoring candidates for the CFA exams in her spare time

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 found in the: A auditor's report. B management commentary. C notes to the financial statements.

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 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.

An entity choosing to accept a risk exposure may: A buy insurance. B enter into a derivative contract. C establish a reserve fund to cover losses.

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

An investment of €500,000 today that grows to €800,000 after six years has a stated annual interest rate closest to: A 7.5% compounded continuously. B 7.7% compounded daily. C 8.0% compounded semiannually.

An investor attempting to replicate a price-weighted index would hold an equal: A percentage of outstanding shares of each security in the index B amount invested in each security in the index C number of units (shares) of each security in the index

An investor buys a 6% annual payment bond with three years to maturity. The bond has a yield-to-maturity of 8% and is currently priced at 94.845806 per 100 of par. The bond's Macaulay duration is closest to: A 2.62. B 2.78. C 2.83.

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.

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.

Galambos Corporation had an average receivables collection period of 19 days in 2003. Galambos has stated that it wants to decrease its collection periodin 2004 to match the industry average of 15 days. Credit sales in 2003 were $300 million, and analysts expect credit sales to increase to $400 million in 2004. To achieve the company's goal of decreasing the collection period, the change in the average accounts receivable balance from 2003 to 2004 that must occur is closest to: A -$420,000. B $420,000. C $836,000.

Given a 300-day holding period yield (HPY) of 7%, the effective annual yield (EAY) is closest to: A 8.4%. B 8.5%. C 8.6%.

Golden Cumulus Corp., a commodities trading company, reported interest expense of $19 million and taxes of $6 million. Interest payable increased by $3 million, and taxes payable decreased by $4 million over the period. How much cash did the company pay for interest and taxes? A $22 million for interest and $10 million for taxes. B $16 million for interest and $2 million for taxes. C $16 million for interest and $10 million for taxes.

Henry sold a call option with an exercise price of $75 for $4. Henry's profit if the stock trades at $81 at option expiration is closest to: A $6 loss. B $10 profit. C $2 loss.

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.

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.

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.

Jamison is a junior research analyst with Howard & Howard, a brokerage and investment banking firm. Howard & Howard's mergers and acquisitions department has represented the Britland Company in all of its acquisitions for the past 20 years. Two of Howard & Howard's senior officers are directors of various Britland subsidiaries. Jamison has been asked to write a research report on Britland. What is the best course of action for her to follow? A Jamison may write the report but must refrain from expressing any opinions because of the special relationships between the two companies. B Jamison should not write the report because the two Howard & Howard officers serve as directors for subsidiaries of Britland. C Jamison may write the report if she discloses the special relationships with the company in the report.

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.

Mabel Corporation (MC) reported accounts receivable of $66 million at the end of its second fiscal quarter. MC had revenues of $72 million for its third fiscal quarter and reported accounts receivable of $55 million at the end of its third fiscal quarter. Based on this information, the amount of cash MC collected from customers during the third fiscal quarter is: A $61 million. B $72 million. C $83 million.

Miller heads the research department of a large brokerage firm. The firm has many analysts, some of whom are subject to the Code and Standards. If Miller delegates some supervisory duties, which statement best describes her responsibilities under the Code and Standards? A Miller's supervisory responsibilities do not apply to those subordinates who are not subject to the Code and Standards. B Miller no longer has supervisory responsibility for those duties delegated to her subordinates. C Miller retains supervisory responsibility for all subordinates despite her delegation of some duties.

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.

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

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.

Over the past 240 months, an investor's portfolio had a mean monthly return of 0.79%, with a standard deviation of monthly returns of 1.16%. According to Chebyshev's inequality, the minimum number of the 240 monthly returns that fall into the range of −0.95% to 2.53% is closest to: A 80. B 107. C 133.

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.

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.

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

Regulators often seek public consultation prior to the implementation of new regulations in order to: A ensure the new rules are favorable to those likely to be affected B educate consumers and service providers on the new rules C improve the final rules by undertaking a cost-benefit analysis

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

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.

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.

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.

Suppose a company uses trade credit with the terms of 2/10, net 50. If the company pays its account on the 50th day, the effective borrowing cost of skipping the discount on day 10 is closest to: A 14.9%. B 15.0%. C 20.2%.

Susan estimates that the probability of the stock market rising in value over 2010 is 40%. The odds that she would offer against the market rising are closest to: A 2 to 3 B 3 to 5 C 3 to 2

The Fulcrum Company produces decorative swivel platforms for home televisions. If Fulcrum produces 40 million units, it estimates that it can sell them for $100 each. Variable production costs are $65 per unit and fixed production costs are $1.05 billion. Which of the following statements is most accurate? Holding all else constant, the Fulcrum Company would: A generate positive operating income if unit sales were 25 million. B have less operating leverage if fixed production costs were 10 percent greater than $1.05 billion. C generate 20 percent more operating income if unit sales were 5 percent greater than 40 million.

The assumption that an entity will continue to operate for the foreseeable future is called: A accrual basis. B comparability. C going concern.

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.

The bond equivalent yield for a 182-day US Treasury bill that has a price of $9,725 per $10,000 face value is closest to: A 5.44%. B 5.53%. C 5.67%.

The bond equivalent yield of a 180-day banker's acceptance quoted at a discount rate of 4.25% for a 360-day year is closest to: A 4.31%. B 4.34%. C 4.40%.

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 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 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 internal rate of return (IRR) rule indicates acceptance of a project when the IRR is: A greater than zero. B less than the opportunity cost of capital. C greater than the opportunity cost of capital.

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 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 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 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 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 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 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 man- ager as: A underemployed. B voluntarily unemployed. C frictionally unemployed.

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.

The value in six years of $75,000 invested today at a stated annual interest rate of 7% compounded quarterly is closest to: A $112,555. B $113,330. C $113,733.

Under IFRS, revenue from barter transactions should be measured based on the fair value of revenue from: A similar barter transactions with unrelated parties. B similar non-barter transactions with related parties. C similar non-barter transactions with unrelated parties.

Under IFRS, which of the following is most likely when the outcome of a long-term project cannot be measured reliably? A The percentage of completion method is used. B The completed contract method is used. C Revenues are recognized to the extent of costs incurred during the period.

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.

Using the same information as in Question 13, what would Accent's cost of goods sold be under the weighted average cost method? A ₤120,000. B ₤122,000. C ₤124,000.

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.

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 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 least likely a source of return from a collateralized commodity futures position? A Spot price return B Collateral yield C Storage costs

Which of the following is least likely an internal credit enhancement? A Overcollateralization B Senior/subordinate structure. C Monoline insurance.

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 current period 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.

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 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

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.

You apply both valuation criteria and financial strength criteria in choosing stocks. The probability that a randomly selected stock (from your investment universe) meets your valuation criteria is 0.25. Given that a stock meets your valuation criteria, the probability that the stock meets your financial strength criteria is 0.40. What is the probability that a stock meets both your valuation and financial strength criteria?

0.10

Find the area under the normal curve up to z = 0.36; that is, find P(Z ≤ 0.36). Interpret this value.

0.36

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.

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 couple plans to pay their child's college tuition for 4 years starting 18 years from now. The current annual cost of college is C$7,000, and they expect this cost to rise at an annual rate of 5 percent. In their planning, they assume that they can earn 6 percent annually. How much must they put aside each year, starting next year, if they plan to make 17 equal payments?

2221.58

Diversification will not help reduce a portfolio's: A systematic risk B specific risk C overall risk

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

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.

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 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.

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

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.

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.

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 bond has an annual modified duration of 7.140 and annual convexity of 66.200. The bond's yield-to-maturity is expected to increase by 50 basis points. The expected percentage price change is closest to: A -3.40%. B -3.49%. C -3.57%.

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.

A bond offers an annual coupon rate of 4%, with interest paid semiannually. The bond matures in two years. At a market discount rate of 6%, the price of this bond per 100 of par value is closest to: A 93.07. B 96.28. C 96.33.

A bond with 20 years remaining until maturity is currently trading for 111 per 100 of par value. The bond offers a 5% coupon rate with interest paid semiannually. The bond's annual yield-to-maturity is closest to: A 2.09%. B 4.18%. C 4.50%.

An increase in the price of Product B leads to an increase in demand for Product A. Product A and Product B are most likely: A Inferior goods. B Substitute goods. C Supernormal goods.

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 client requires £100,000 one year from now. If the stated annual rate is 2.50% compounded weekly, the deposit needed today is closest to: A £97,500. B £97,532. C £97,561.

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.

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.

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.

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.

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

A corporate insider is consistently able to earn abnormal returns. This fact most likely: A Supports the case for weak‐form efficiency of markets. B Weakens the case for strong‐form efficiency of markets. C Weakens the case for semi-strong‐form efficiency of markets

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 current account surplus least likely results from: A High private savings. B High private investment. C A government surplus.

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 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 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 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 British company listed on 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 fund manager's alpha is that part of the fund's return that can be attributed to: (a) the market (b) skill (c) luck

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 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 sample mean is computed from a population with a variance of 2.45. The sample size is 40. The standard error of the sample mean is closest to: A 0.039. B 0.247. C 0.387.

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 123-day T-bill with a maturity value of $100,000 is priced at $99,620. The bill's effective annual yield is closest to: A 0.38%. B 1.12%. C 1.14%.

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

Calculate the total return on a share of equity using the following data: Purchase price: $50 Sale price: $42 Dividend paid during holding period: $2 A -12.0% B -14.3% C -16.0%

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 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.

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 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 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.

Uses of market indexes do not include serving as a: A measure of systematic risk. B basis for new investment products. C benchmark for evaluating portfolio performance.

What is a distributed ledger technology (DLT) application suited for physical assets? A Tokenization B Cryptocurrencies C Permissioned networks

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 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.

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

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 a stated purpose of disclosure in Standard VI(C)-Referral Fees? A Disclosure will allow the client to request discounted service fees. B Disclosure will help the client evaluate any possible partiality shown in the recommendation of services. C Disclosure means advising a prospective client about the referral arrangement once a formal client relationship has been established.

Which of the following is not a sovereign bond issue? A State of New York municipal bond B US Treasury note C German bund

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 which sector would a manufacturer of personal care products be classified? A Health care. B Consumer staples. C Consumer discretionary.

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

Interim financial reports released by a company are most likely to be: A monthly. B unaudited. C unqualified.

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.

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.

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, 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.

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

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.

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 derivatives is classified as a contingent claim? A Futures contracts B Interest rate swaps C Credit default swaps

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 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.

To cover the first year's total college tuition payments for his two children, a father will make a $75,000 payment five years from now. How much will he need to invest today to meet his first tuition goal if the investment earns 6 percent annually?

56044.36

Two years from now, a client will receive the first of three annual payments of $20,000 from a small business project. If she can earn 9 percent annually on her investments and plans to retire in six years, how much will the three business project payments be worth at the time of her retirement?

77894.21

A couple plans to set aside $20,000 per year in a conservative portfolio projected to earn 7 percent a year. If they make their first savings contribution one year from now, how much will they have at the end of 20 years?

819909.85

You are examining the record of an investment newsletter writer who claims a 70 percent success rate in making investment recommendations that are profitable over a one-year time horizon. You have the one-year record of the newsletter's seven most recent recommendations. Four of those recommendations were profitable. If all the recommendations are independent and the newsletter writer's skill is as claimed, what is the probability of observing four or fewer profitable recommendations out of seven in total?

35.3%

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

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.

Introduction of a new model causes a decline in sales of a car manufacturer's older models. This is most likely an example of: A An externality. B A sunk cost. C An opportunity cost.

Investing the majority of the portfolio on a passive or low active risk basis while a minority of the assets is managed aggressively in smaller portfolios is best described as: A the core-satellite approach. B a top-down investment policy. C a delta-neutral hedge approach.

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.

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.

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: 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.

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.

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.

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 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.

Susan wants to insure her portfolio against losses, while continuing to benefit from any appreciation in the value of her portfolio. She is most likely to pursue: A A protective put strategy. B A covered call strategy. C An interest rate collar.

Technical analysis relies most importantly on: A price and volume data. B accurate financial statements. C fundamental analysis to confirm conclusions.

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 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 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 feature of a well-functioning investment industry that gives investors the ability to quickly buy and sell a significant amount of an investment without having a material impact on the price is described as: A liquidity B competitive markets C risk transfer

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 following information applies to Rotunda Advisors, a hedge fund: $288 million in assets under management (AUM) as of prior year-end 2% management fee (based on year-end AUM) 20% incentive fee calculated: net of management fee using a 5% soft hurdle rate using a high-water mark (high-water mark is $357 million) Current year fund return is 25%The total fee earned by Rotunda in the current year is closest to: A $7.20 million. B $20.16 million. C $21.60 million.

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 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 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 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 lowest point on the long-run average cost curve is most likely known as the firm's: A Minimum efficient scale. B Maximum efficient scale. C Econometric scale.

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 marketing director for a Swiss specialty equipment manufacturer estimates the firm can sell 200 units and earn total revenue of CHF500,000. However, if 250 units are sold, revenue will total CHF600,000. The marginal revenue per unit associated with marketing 250 units instead of 200 units is closest to: A CHF 2,000. B CHF 2,400. C CHF 2,500.

The money‐market yield for a T‐bill with a face value of $1,000 that is currently priced at $970 and has 110 days remaining until maturity is closest to: A 10.12% B 10.44% C 11%

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 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 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 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 underlying on an American call option is a stock that is currently trading at $65. The option has an exercise price of $60, it expires in three months, and the risk‐free rate is 5%. The minimum value of this option is closest to: A $5.73 B $5 C $7.86

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 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 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.

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.

To comply with Standard III (E): Preservation of Confidentiality, members must preserve the confidentiality of information communicated to them by: A Past, current, and prospective clients. B Past and current clients only. C Current and prospective clients only.

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.

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 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 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 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 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 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 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 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 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? increase in sample size is most likely to result in a: 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 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 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 corporate debt instruments has the highest seniority ranking? A Second lien B Senior unsecured C Senior subordinated

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 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 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 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

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 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 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 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 correct statement of a member's or candidate's duty under the Code and Standards? A In the absence of specific applicable law or other regulatory requirements, the Code and Standards govern the member's or candidate's actions. B A member or candidate is required to comply only with applicable local laws, rules, regulations, or customs, even though the Code and Standards may impose a higher degree of responsibility or a higher duty on the member or candidate. C A member or candidate who trades securities in a securities market where no applicable local laws or stock exchange rules regulate the use of material nonpublic information may take investment action based on material non-public information.

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 characteristic of an effective financial reporting framework? A Comparability B Comprehensiveness C Transparency

Which of the following is least likely an example of a forward commitment? A A call option B A futures contract C An interest‐rate swap

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 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 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 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 characteristic of a coherent financial reporting framework? A Timeliness. B Consistency. C Transparency.

Which of the following is not a constraint on the financial statements according to the Conceptual Framework (2010)? 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 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 share- holders and management? A Risk tolerance B Multiple share classes C Accounting and reporting practices

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 earnings in the current period? 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 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 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 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 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 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 regarding ESG implementation methods is most accurate? A Negative screening is the most commonly applied method. B Thematic investing considers multiple factors. C The best-in-class strategy excludes industries with unfavorable ESG aspects.

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 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 market indices has a contrarian effect on portfolio weights? A Fundamental weighting B Price weighting C Market value weighting

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 phase in the financial statement analysis framework most likely involves 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 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.

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 cross- over 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 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 leader- ship 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 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 Global Investment Performance Standards, which of the following is one of the nine sections containing investment performance provisions? A Real Estate. B Derivatives. C Legal and Ethical Considerations.

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

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.

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

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

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

The process of risk management includes: A minimizing risk. B maximizing returns. C defining and measuring risks being taken.

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 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 5-year, 5% semiannual coupon payment corporate bond is priced at 104.967 per 100 of par value. The bond's yield-to-maturity, quoted on a semiannual bond basis, is 3.897%. An analyst has been asked to convert to a monthly periodicity. Under this conversion, the yield-to-maturity is closest to: A 3.87%. B 4.95%. C 7.67%.

A 7% U.S. corporate bond is priced for settlement on May 18, 2015. The bond makes semiannual coupon payments on January 20 and July 20 of each year and matures on July 20, 2019. The bond uses the 30/360 day‐count convention for accrued interest. Given that stated annual yield‐ to‐maturity is 6.5%, the flat price of the bond per 100 of par value on May 18, 2015 is closest to: A $101.7892 B $103.7054 C $104.0386

A German publicly traded company, to raise new capital, gave its existing share- holders 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 bank quotes a stated annual interest rate of 4.00%. If that rate is equal to an effective annual rate of 4.08%, then the bank is compounding interest: A daily. B quarterly. C semiannually.

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 is initially trading at a price of $98.725. If interest rates decrease by 25bp, its price is expected to rise to $99.875. On the other hand, if interest rates increase by 25bp, its price is expected to fall to $97.465. The bond's modified duration is closest to: A 2.36 B 4.88 C 5.12

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 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.

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 client who is a 34-year old widow with two healthy young children (aged5 and 7) has asked you to help her form an investment policy statement. She has been employed as an administrative assistant in a bureau of her national government for the previous 12 years. She has two primary financial goals—her retirement and providing for the college education of her children. This client's time horizon is best described as being: A long term. B short term. C medium term.

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

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 pay- able 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 comparing straight-line and double-declining balance amortization methods for a non-renewable six-year license, acquired for €600,000. The difference between the Year 4 ending net book values using the two methods is closest to: A €81,400. B €118,600. C €200,000.

A company issues €10,000,000 face value of 10-year bonds dated 1 January 2015 when the market interest rate on bonds of comparable risk and terms is 6%. The bonds pay 7% interest annually on 31 December. Based on the effective interest rate method, the interest expense on 31 December 2015 is closest to: A €644,161. B €700,000. C €751,521.

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 reports income tax expense of $25,000. During the year it reports a decrease in deferred tax liabilities of $12,500 and an increase in deferred tax assets of $5,000. The company's taxes payable for the year are closest to: A $42,500 B $7,500 C $17,500

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

A company's management wishes to report higher earnings for the next few years. In order to accomplish this, management will most likely: A Increase the asset's useful life estimate and the estimated salvage value. B Increase the asset's useful life estimate and reduce the salvage value estimate. C Increase the estimated salvage value and reduce the useful life estimate.

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 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 coupon-bearing bond was purchased at par. If the bond were held until maturity and interest rates fell during the period, the actual ex‐post return would most likely be: A Lower than the YTM at time of purchase. B Higher than the YTM at time of purchase. C Equal to the YTM at time of purchase because the bond was held until maturity.

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

A drag on liquidity is most likely to occur when: A There is a delay in cash coming into the company. B Cash leaves the company too quickly. C The company loses creditworthiness.

A financial advisory firm that implements internal policies regarding information barriers, suitability standards, and restrictions on self-dealing is addressing issues related to which of the following types of regulation? A Sales practices rules B Trading rules C Disclosure rules

A firm will select two of four vice presidents to be added to the investment committee. How many different groups of two are possible? A6 B 12 C 24

A firm's risk management committee would be expected to do all of the follow- ing 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 form of pension plan in which the participant has some ability to determine how pension contributions are invested is described as a(n): A defined contribution plan B endowment plan C defined benefit plan

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 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 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 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 three-month forward exchange rate in CAD/USD is listed by a dealer at 1.0123. The dealer also quotes 3-month forward points as a percentage at 6.8%. The CAD/USD spot rate is closest to: A 0.9478. B 1.0550. C 1.0862.

A portfolio manager is considering the purchase of a bond with a 5.5% coupon rate that pays interest annually and matures in three years. If the required rate of return on the bond is 5%, the price of the bond per 100 of par value is closest to: A 98.65. B 101.36. C 106.43.

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.

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.

An operator of a ski resort is considering offering price reductions on weekday ski passes. At the normal price of €50 per day, 300 customers are expected to buy passes each weekday. At a discounted price of €40 per day 450 customers are expected to buy passes each weekday. The marginal revenue per customer earned from offering the discounted price is closest to: A €20. B €40. C €50.

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 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 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 sports car, purchased for £200,000, is financed for five years at an annual rate of 6% compounded monthly. If the first payment is due in one month, the monthly payment is closest to: A £3,847. B £3,867. C £3,957.

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

Consider the following statements: Statement 1: The option embedded in a putable bond is more likely to be exercised by the issuer when interest rates rise. Statement 2: If a bond is sold between coupon payment dates, accrued interest is due to the buyer. Which of the following is most likely? A Both statements are incorrect. B Only Statement 1 is correct. C Only Statement 2 is correct.

Consolidated Enterprises issues €10 million face value, five-year bonds with a coupon rate of 6.5 percent. At the time of issuance, the market interest rate is 6.0 percent. Using the effective interest rate method of amortisation, the carry- ing value after one year will be closest to: A €10.17 million. B €10.21 million. C €10.28 million.

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

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.

A two-year floating-rate note pays 6-month Libor plus 80 basis points. The floater is priced at 97 per 100 of par value. Current 6-month Libor is 1.00%. Assume a 30/360 day-count convention and evenly spaced periods. The dis- count margin for the floater in basis points (bps) is closest to: A 180 bps. B 236 bps. C 420 bps.

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.

A zero-coupon bond matures in 15 years. At a market discount rate of 4.5% per year and assuming annual compounding, the price of the bond per 100 of par value is closest to: A 51.30. B 51.67. C 71.62.

ABC Company currently has a debt‐to‐equity ratio of 0.3. Its target debt‐to‐equity ratio is 0.4. The risk‐free rate is 6%, and expected equity market return is 12%. ABC is considering a project that has a beta of 1.2. Given that the company's after‐tax cost of debt is 7%, and the applicable tax rate is 40%, the WACC that should be used in evaluating this project is closest to: A 10.63% B 11.43% C 11.77%

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 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.

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.

During 2009, Argo Company sold 10 acres of prime commercial zoned land to a builder for $5,000,000. The builder gave Argo a $1,000,000 down payment and will pay the remaining balance of $4,000,000 to Argo in 2010. Argo purchased the land in 2002 for $2,000,000. Using the installment method, how much profit will Argo report for 2009? A $600,000. B $1,000,000. C $3,000,000.

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 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 the futures market, if a trader receives a margin call, she must make a deposit in her margin account such that the balance in her account is at least equal to the: A Initial margin requirement. B Variation margin requirement. C Maintenance margin requirement.

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

Increasing and decreasing marginal returns to labor most likely explain the U‐shape of the: A Short-run marginal cost curve. B Long-run average cost curve. C Short-run total product curve.

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

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 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.

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 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 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.

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.

Bronson provides investment advice to the board of trustees of a private university endowment fund. The trustees have provided Bronson with the fund's financial information, including planned expenditures. Bronson receives a phone call on Friday afternoon from Murdock, a prominent alumnus, requesting that Bronson fax him comprehensive financial information about the fund. According to Murdock, he has a potential contributor but needs the information that day to close the deal and cannot contact any of the trustees. Based on the CFA Institute Standards, Bronson should: A Send Murdock the information because disclosure would benefit the client. B Not send Murdock the information to preserve confidentiality. C Send Murdock the information, provided Bronson promptly notifies the trustees.

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

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 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.

Consider the following statements: Statement 1: Generally speaking, floating‐rate notes have less interest rate risk than fixed‐rate bonds. Statement 2: The spread on a floating‐rate note varies with the issuer's creditworthiness during the term of the bond. Which of the following is most likely? A Both statements are incorrect. B Only Statement 1 is correct. C Only Statement 2 is correct.

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 discrete uniform distribution with 20 potential outcomes of integers 1 to 20, the probability that X is greater than or equal to 3 but less than 6, P(3 ≤ X < 6), is: A 0.10. B 0.15. C 0.20.

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 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 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 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 earnings quality, financial reporting quality most likely pertains to: A sustainable earnings. B relevant information. C adequate return on investment.

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 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.

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 under- lying common stock. The above process could best be described as: A hedging. B arbitrage. C securitization.

Jim White has sold short 100 shares of Super Stores at a price of $42 per share. He has also simultaneously placed a "good-till-cancelled, stop 50, limit 55 buy" order. Assume that if the stop condition specified by White is satisfied and the order becomes valid, it will get executed. Excluding transaction costs, what is the maximum possible loss that White can have? A $800. B $1,300. C Unlimited.

Kim Corporation is considering an investment of 750 million won with expected after-tax cash inflows of 175 million won per year for seven years. The required rate of return is 10 percent. Expressed in years, the project's payback period and discounted payback period, respectively, are closest to: A 4.3 years and 5.4 years. B 4.3 years and 5.9 years. C 4.8 years and 6.3 years.

Laura Bolt, CFA, resides in a country called Lavasia, but frequently does business in Magmaland, with a client who is a citizen of Magmaland. Lavasia's law applies in this case and states that laws of the client's home country govern. Lavasia's laws are more strict than the Code and Standards, while Magmaland's laws are less strict than the Code and Standards. Bolt is most likely required to adhere to: A The laws of Lavasia. B The Code and Standards. C The laws of Magmaland.

Lesp Industries issues five-year bonds dated 1 January 2015 with a face value of $2,000, 000 and 3% coupon rate paid annually on 31 December. The market interest rate on bonds of comparable risk and term is 4%. The sales proceeds of the bonds are $1,910,964. Under the effective interest rate method, the interest expense in 2017 is closest to: A $77,096. B $77,780. C $77,807.

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

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.

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.

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.

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.

Morgan Insurance Ltd. issued a fixed-rate perpetual preferred stock three years ago and placed it privately with institutional investors. The stock was issued at $25 per share with a $1.75 dividend. If the company were to issue preferred stock today, the yield would be 6.5 percent. The stock's current value is: A $25.00. B $26.92. C $37.31.

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.

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.

Observed overreactions in markets can be explained by an investor's degree of: A risk aversion. B loss aversion. C confidence in the market.

On 1 January 2010, Elegant Fragrances Company issues £1,000,000 face value, five-year bonds with annual interest payments of £55,000 to be paid each 31 December. The market interest rate is 6.0 percent. Using the effective interest rate method of amortisation, Elegant Fragrances is most likely to record: A an interest expense of £55,000 on its 2010 income statement. B a liability of £982,674 on the 31 December 2010 balance sheet. C a £58,736 cash outflow from operating activity on the 2010 statement of cash flows.

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

The current price of a stock is $25 per share. You have $10,000 to invest. You borrow an additional $10,000 from your broker and invest $20,000 in the stock. If the maintenance margin is 30 percent, at what price will a margin call first occur? A $9.62. B $17.86. C $19.71.

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 following information is from the annual report of Adidas AG for December 2010: - Depreciation and amortization: €249 million - Total assets: €10,618 million - Total debt: €1,613 million - Shareholders' equity: €4,616 million The debt/capital ratio of Adidas AG is closest to: A 15.19%. B 25.90%. C 34.94%.

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

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

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 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 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 mosaic theory holds that an analyst: A Violates the Code and Standards if the analyst fails to have knowledge of and comply with applicable laws. B Can use material public information and nonmaterial nonpublic information in the analyst's analysis. C Should use all available and relevant information in support of an investment recommendation.

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

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 privatization of an existing hospital is best described as: A a greenfield investment. B a brownfield investment. C an economic infrastructure investment.

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 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 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 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 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.

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.

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.

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 two components of credit risk are default probability and: A spread risk. B loss severity. C market liquidity risk.

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 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 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.

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.

Which of the following groups best illustrates a sample? A The set of all estimates for Exxon Mobil's FY2015 EPS B The FTSE Eurotop 100 as a representation of the European stock market C UK shares traded on 13 August 2015 that also closed above £120/share on the London Stock Exchange

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

Which of the following is least likely a violation of Standard V (B): Communication with Clients and Prospective Clients? A An analyst recommends an investment to a client without going into specific details because she feels that the client would not be able to understand the complex models involved. B An analyst divulges confidential information about current clients to prospective clients. C An analyst states his strong beliefs as facts in a research report.

Which of the following is least likely an assertion of the central limit theorem? A Given that the sample size is greater than 30, the distribution of the sample mean will approximately be normal regardless of the distribution of the underlying population. B The variance of the distribution of sample means equals the variance of the population divided by the square root of the size of the sample. C The mean of the population and the mean of sampling distribution are the same.

Which of the following is least likely an order matching rule used in a pure auction market? A Time precedence B Size precedence C Display precedence

Which of the following is least likely positive for a Giffen good? A The relationship between the income effect and the price change B The relationship between the substitution effect and the price change C The relationship between quantity demanded and the price change

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 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 a violation of Standard III (B): Fair Dealing? A An analyst emphasizes the high returns of a trading strategy to a client without providing detailed information about the strategy. B An analyst carries out trades for discretionary accounts before non‐discretionary accounts. C An analyst guarantees high returns on a risky investment.

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 regarding finance costs incurred during the construction of an asset: A Under U.S. GAAP they must be capitalized, while under IFRS companies may choose to capitalize these costs. B These costs must be capitalized under both U.S. GAAP and IFRS. C Under IFRS they must be capitalized, while under U.S. GAAP companies may choose to capitalize these 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 A increase in corporate taxes.

Which of the following is most likely? A Investors would prefer a portfolio with a higher SF Ratio because it has a lower probability of generating a return greater than the threshold level. B Investors would prefer a portfolio with a higher SF Ratio because it has a lower probability of generating a return lower than the threshold level. C Investors would prefer a portfolio with a lower SF Ratio because it has a higher probability of generating a return higher than the threshold level.

Which of the following is not a factor to consider in a document classification system? A Direction in which documents flow B Ensuring that all documents are standardized C Source of the document

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 recognized approach to standard-setting? A A rules-based approach. B An asset/liability approach. C A principles-based approach.

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 Fed least likely to do if wants to increase the quantity of money? A Lower the discount rate B Sell securities in an open‐market operation C Lower the required reserve ratio

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

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

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 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 provisions is a benefit to the issuer? A Put provision B Call provision C Conversion provision

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 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 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 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 is correct under the Code and Standards? A CFA Institute members and candidates are prohibited from undertaking independent practice in competition with their employer. B Written consent from the employer is necessary to permit independent practice that could result in compensation or other benefits in competition with a member's or candidate's employer. C Members and candidates are prohibited from making arrangements or preparations to go into a competitive business before terminating their relationship with their employer.

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 bond has an annual modified duration of 7.020 and annual convexity of 65.180. If the bond's yield-to-maturity decreases by 25 basis points, the expected percentage price change is closest to: A 1.73%. B 1.76%. C 1.78%.

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 bond with two years remaining until maturity offers a 3% coupon rate with interest paid annually. At a market discount rate of 4%, the price of this bond per 100 of par value is closest to: A 95.34. B 98.00. C 98.11.

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 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 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 that: A inflate reported revenue in the current period. B delay expense recognition in the current period. C accelerate expense recognition in the current period.

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 proper- ties become less frequent. C change from the fair value model when the company transfers investment property to property, plant, and equipment.

A company issues $1,000,000 face value of 10-year bonds on 1 January 2015 when the market interest rate on bonds of comparable risk and terms is 5%. The bonds pay 6% interest annually on 31 December. At the time of issue, the bonds payable reflected on the balance sheet is closest to: A $926,399. B $1,000,000. C $1,077,217.

A company purchases equipment for $200,000 with a five-year useful life and salvage value of zero. It uses the double-declining balance method of depreciation for two years, then shifts to straight-line depreciation at the beginning of Year 3. Compared with annual depreciation expense under the double-declining balance method, the resulting annual depreciation expense in Year 4 is: A smaller. B the same. C greater.

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 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.

A consumer pays off a car loan held by a bank with which he has no other business. Which of the following is the most appropriate document management practice for the bank to follow? A Return all documents to the consumer B Shred all documents related to the transaction C Determine which documents to retain and which to dispose of

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 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 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 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 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 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 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.

A 365-day year bank certificate of deposit has an initial principal amount of USD 96.5 million and a redemption amount due at maturity of USD 100 mil- lion. The number of days between settlement and maturity is 350. The bond equivalent yield is closest to: A 3.48%. B 3.65%. C 3.78%.

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.

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, current-period 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 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 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 an expense classification by function is: A tax expense. B interest expense. C cost of goods sold.

An investor buys a share of stock for $52.68 and receives an $0.88 dividend one year later. If the share sells for $57.50 just after the dividend payment, the hold- ing period return is closest to: A 9.1%. B 9.9%. C 10.8%.

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 is considering the purchase of a common stock with a $2.00 annual dividend. The dividend is expected to grow at a rate of 4 percent annually. If the investor's required rate of return is 7 percent, the intrinsic value of the stock is closest to: A $50.00. B $66.67. C $69.33.

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.

An investor purchased 100 shares of a stock for $34.50 per share at the beginning of the quarter. If the investor sold all of the shares for $30.50 per share after receiving a $51.55 dividend payment at the end of the quarter, the holding period return is closest to: A −13.0%. B −11.6%. C −10.1%.

An investor purchases an annual coupon bond with a 6% coupon rate and exactly 20 years remaining until maturity at a price equal to par value. The investor's investment horizon is eight years. The approximate modified duration of the bond is 11.470 years. The duration gap at the time of purchase is closest to: A -7.842. B 3.470. C 4.158.

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.

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.

Disinflation is best described as a: A decline in price levels. B negative inflation rate. C decline in the inflation rate.

Dot.Com has determined that it could issue $1,000 face value bonds with an 8 percent coupon paid semi-annually and a five-year maturity at $900 per bond. If Dot.Com's marginal tax rate is 38 percent, its after-tax cost of debt is closest to: A 6.2 percent. B 6.4 percent. C 6.6 percent.

During the most recent quarter, a steel company in South Korea had the following transactions - Bought iron ore from Australia for AUD50 million. - Sold finished steel to the United States for USD65 million. - Borrowed AUD50 million from a bank in Sydney. - Received a USD10 million dividend from US subsidiary. - Paid KRW550 million to a Korean shipping company. Which of the following would be reflected in South Korea's current account balance for the quarter? A The loan. B The shipping. C The dividend.

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.

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.

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 2009, Flamingo Products had net income of $1,000,000. At 1 January 2009, there were 1,000,000 shares outstanding. On 1 July 2009, the company issued 100,000 new shares for $20 per share. The company paid $200,000 in dividends to common shareholders. What is Flamingo's basic earnings per share for 2009? A $0.80. B $0.91. C $0.95.

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 a mortgage pass-through security, which of the following risks most likely increases as interest rates decline? A Balloon B Extension C Contraction

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.

For its fiscal year-end, Sublyme Corporation reported net income of $200 mil- lion and a weighted average of 50,000,000 common shares outstanding. There are 2,000,000 convertible preferred shares outstanding that paid an annual dividend of $5. Each preferred share is convertible into two shares of the common stock. The diluted EPS is closest to: A $3.52. B $3.65. C $3.70.

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

Frank Henry, CFA, works as an investment manager at Beta Financials. One of his clients offered him a free trip to Mauritius for excellent performance, which Henry accepted. Henry's boss recently learned about this arrangement from another employee, but did not do anything about the arrangement, as the client was very important to the firm. Which of the following is most likely? A Henry violated Standard IV (B): Additional Compensation Arrangements. B Henry's boss violated Standard IV (C): Responsibilities of Supervisors. C Henry violated Standard IV (B): Additional Compensation Arrangements and his boss violated Standard IV (C): Responsibilities of Supervisors.

G&F Advisors claims compliance with the Global Investment Performance Standards (GIPS) in its marketing materials. The compliant presentation includes a footnote which indicates that the firm has been verified by an independent third party. An additional note states that G&F is in compliance with the GIPS standards except for its private equity investments. Is it likely that G&F violated the GIPS standards? A No, because the footnotes meet the requirements of the Standards. B No, because the provisions do not apply to the private equity investments. C Yes, because they cannot claim compliance unless all requirements of the Standard are met.

Green Glory Corp., a garden supply wholesaler, reported cost of goods sold for the year of $80 million. Total assets increased by $55 million, including an increase of $5 million in inventory. Total liabilities increased by $45 million, including an increase of $2 million in accounts payable. The cash paid by the company to its suppliers is most likely closest to: A $73 million. B $77 million. C $83 million.

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.

The Beasley Corporation has just paid a dividend of $1.75 per share. If the required rate of return is 12.3 percent per year and dividends are expected to grow indefinitely at a constant rate of 9.2 percent per year, the intrinsic value of Beasley Corporation stock is closest to: A $15.54. B $56.45. C $61.65.

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 entity's risk tolerance.

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.

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.

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

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 difference between total value to buyers and total variable cost of producers is most likely known as: A Consumer surplus. B Producer surplus. C Total surplus.

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 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 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 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 income statement is best used to evaluate a company's: A current financial position. B sources of cash flow. C financial results from business activities.

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

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

The probability of an event given that another event has occurred is a: A joint probability. B marginal probability. C conditional probability.

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.

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 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 total number of parameters that fully characterizes a multivariate normal distribution for the returns on two stocks is: A 3. B 4. C 5.

To avoid plagiarism an analyst should most likely disclose: A The sources of widely available public information. B The sources of summarized reports of other analysts. C The sources of both widely available public information and summarized reports of other analysts.

To identify intermarket relationships, technicians commonly use: A stochastic oscillators. B Fibonacci ratios. C relative strength analysis.

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.

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 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.

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 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 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 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 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 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 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 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 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 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 counter parties 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 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 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 least likely affects the spot price of an asset that entails no costs nor offers any benefits? A The time value of money. B The risk aversion of investors. C The price recently paid by other investors.

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 government actions will most likely lead to an increase in the level of aggregate demand? A reduction in: A transfer payments B public spending on social goods and infrastructure C the capital gains tax

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 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 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 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 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 characteristic of GIPS? A The investment management firm must define the entity that claims compliance. B All fee‐paying discretionary portfolios are required to be included in composites defined according to a similar strategy or investment objective. C After presenting five years of compliant history, a firm must add annual performance each year going forward up to a maximum of 10 years.

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 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 violate Standard VII (B): Reference to CFA Institute, the CFA Designation and the CFA Program? A A Level III candidate referring to herself as CFA, Level II. B A Level III candidate awaiting results referring to himself as CFA, expected 2009. C An investment manager stating, "Completion of the CFA program has enhanced my portfolio management skills."

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 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 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 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 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 life-cycle phases is typically characterized by high prices? A Mature. B Growth. C Embryonic.

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 ratios is most likely lower in the early years of an asset's life if the company uses the straight-line method instead of the double-declining balance method for depreciation? A Operating profit margin B Operating return on assets C Asset turnover

Which of the following sources of changes in the net pension asset/liability is most likely to be recognized in other comprehensive income? A Service costs. B Net interest income. C Actuarial losses.

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 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.

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 clearly conflicts with the recommended procedures for compliance presented in the CFA Institute Standards of Practice Handbook? A Firms should disclose to clients the personal investing policies and procedures established for their employees. B Prior approval must be obtained for the personal investment transactions of all employees. C For confidentiality reasons, personal transactions and holdings should not be reported to employers unless mandated by regulatory organizations.

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 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? 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.

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.

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 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 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 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 risk is most likely avoided by forming a diversified portfolio? A Total risk. B Systematic risk. C Nonsystematic risk.

Which one of the following actions will help to ensure the fair treatment of brokerage firm clients when a new investment recommendation is made? A Informing all people in the firm in advance that a recommendation is to be disseminated. B Distributing recommendations to institutional clients prior to individual accounts. C Minimizing the time between the decision and the dissemination of a recommendation.

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

Which statement about a manager's use of client brokerage commissions violates the Code and Standards? A A client may direct a manager to use that client's brokerage commissions to purchase goods and services for that client. B Client brokerage commissions should be used to benefit the client and should be commensurate with the value of the brokerage and research services received. C Client brokerage commissions may be directed to pay for the investment manager's operating expenses.

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

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 private equity strategy is most likely used to finance a start-up company? A Growth equity B Buyout C Venture capital

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

White Flag, a women's clothing manufacturer, reported salaries expense of$20 million. The beginning balance of salaries payable was $3 million, and the ending balance of salaries payable was $1 million. How much cash did the company pay in salaries? A $18 million. B $21 million. C $22 million.

Williams Inc. borrows $1.5m for a month through a banker's acceptance. The company is offered an all‐inclusive rate of 9%. Its effective borrowing cost is closest to: A 9.00% B 9.23% C 9.07%

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 data in Problem 6, what would be the most reasonable explanation of the financial data? A The decline in the company's equity results from a decline in the market value of this company's common shares. B The €250 increase in the company's debt from FY3 to FY5 indicates that lenders are viewing the company as increasingly creditworthy. C The decline in the company's equity indicates that the company may be incurring losses, paying dividends greater than income, and/or repurchasing shares.

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.

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 deter- mined 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.

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).

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

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 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 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 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 commercial real estate investment, the amount derived from discounting future cash flows of lease and rental payments plus capital appreciation represents the value of the: A asset B equity C liability

In common‐size income statements, which of the following items is least likely always expressed as a percentage of sales? A Income taxes B Depreciation C Interest expense

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

At a 5% interest rate per year compounded annually, the present value (PV) of a 10-year ordinary annuity with annual payments of $2,000 is $15,443.47. The PV of a 10-year annuity due with the same interest rate and payments is closest to: A $14,708. B $16,216. C $17,443.

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.

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 companies most likely has the greatest ability to quickly increase its capacity? A Restaurant. B Steel producer. C Legal services provider.

A client plans to send a child to college for four years starting 18 years from now. Having set aside money for tuition, she decides to plan for room and board also. She estimates these costs at $20,000 per year, payable at the beginning of each year, by the time her child goes to college. If she starts next year and makes 17 payments into a savings account paying 5 percent annually, what annual payments must she make?

2744.50

Suppose you plan to send your daughter to college in three years. You expect her to earn two-thirds of her tuition payment in scholarship money, so you estimate that your payments will be $10,000 a year for four years. To estimate whether you have set aside enough money, you ignore possible inflation in tuition payments and assume that you can earn 8 percent annually on your investments. How much should you set aside now to cover these payments?

28396.15

A factor associated with the widespread adoption of algorithmic trading is increased: A market efficiency. B average trade sizes. C trading destinations.

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.

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.

Suppose that 5 percent of the stocks meeting your stock-selection criteria are in the telecommunications (telecom) industry. Also, dividend-paying telecom stocks are 1 percent of the total number of stocks meeting your selection criteria. What is the probability that a stock is dividend paying, given that it is a telecom stock that has met your stock selection criteria?

0.20

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.

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 who owns a bond with a 9% coupon rate that pays interest semiannually and matures in three years is considering its sale. If the required rate of return on the bond is 11%, the price of the bond per 100 of par value is closest to: A 95.00. B 95.11. C 105.15.

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.

An online brokerage firm has set the minimum margin requirement at 55 percent. What is the maximum leverage ratio associated with a position financed by this minimum margin requirement? A 1.55. B 1.82. C 2.22.

Analysts should treat deferred tax liabilities that are expected to reverse as: A equity. B liabilities. C neither liabilities nor equity.

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.

ABC Company's dividend growth rate is expected to be 20% for the next three years. After three years, the company's dividend growth rate will stabilize at 7%. ABC's last dividend payment was $4 per share. Given that its cost of equity is 12%, the current value of ABC's stock is closest to: A $119.08 B $107.80 C $147.92

ABC Corp. purchases a milling machine. The company considers the machine's rotating cutter to be a significant component. Which of the following is least likely an additional estimate that the company will be required to make if it depreciates the milling machine using the component method instead of depreciating it as a whole? A Useful life of milling machine B Useful life of cutter C Portion of residual value attributable to cutter

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 fundamental ethical and professional principles applicable to the investment industry, which group should have its interests ranked first? A Clients B Employers C Co-workers

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 (2010), which of the following is not an enhancing qualitative characteristic of information in financial statements? A Accuracy. B Timeliness. C Comparability.

According to the Fundamentals of Compliance section of the Global Investment Performance Standards, issues that a firm must consider when claiming compliance include all of the following except: A replicating performance. B properly defining the firm. C documenting firm policies and procedures used in establishing and maintaining compliance with the Standards.

After interviewing a client in order to prepare a written investment policy statement (IPS), you have established the following: - The client has earnings that vary dramatically between £30,000 and £70,000 (pre-tax) depending on weather patterns in Britain. - In three of the previous five years, the after-tax income of the client has been less than £20,000. - The client's mother is dependent on her son (the client) for approximately £9,000 per year support. - The client's own subsistence needs are approximately £12,000 per year. - The client has more than 10 years' experience trading investments including commodity futures, stock options, and selling stock short. - The client's responses to a standard risk assessment questionnaire suggest he has above average risk tolerance. The client is best described as having a: A low ability to take risk, but a high willingness to take risk. B high ability to take risk, but a low willingness to take risk. C high ability to take risk and a high willingness to take risk.

Albert and Tye, who recently started their own investment advisory business, have registered to take the Level III CFA examination. Albert's business card reads, "Judy Albert, CFA Level II." Tye has not put anything about the CFA designation on his business card, but promotional material that he designed for the business describes the CFA requirements and indicates that Tye participates in the CFA Program and has completed Levels I and II. According to the Standards: A Albert has violated the Standards, but Tye has not. B Tye has violated the Standards, but Albert has not. C Both Albert and Tye have violated the Standards.

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

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 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.

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

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.

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 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 com- paring 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 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 has determined that the appropriate EV/EBITDA for Rainbow Company is 10.2. The analyst has also collected the following forecasted information for Rainbow Company: EBITDA = $22,000,000 Market value of debt = $56,000,000 Cash = $1,500,000 The value of equity for Rainbow Company is closest to: A $169 million. B $224 million. C $281 million.

An analyst is flown along with a group of peers to a company's mining facilities on a chartered flight, and put up in a hotel for three days. In determining whether these arrangements violate Standard I (B): Independence and Objectivity, the analyst must consider: A Whether she can remain objective and whether her integrity might be perceived by her clients to have been compromised. B Whether she can remain objective and whether her employer is confident that she will remain objective. C Only whether her integrity might be perceived by her clients to have been compromised.

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 rates individual stocks in the market index as under perform, neutral, or outperform. The type of scale that is used to measure this data is most likely a(n): A Ordinal scale. B Ratio scale. C Interval scale.

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

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 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 buys a three-year bond with a 5% coupon rate paid annually. The bond, with a yield-to-maturity of 3%, is purchased at a price of 105.657223 per 100 of par value. Assuming a 5-basis point change in yield-to-maturity, the bond's approximate modified duration is closest to: A 2.78. B 2.86. C 5.56.

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 is most likely to consider adding alternative investments to a traditional investment portfolio because: A of their historically higher returns. B of their historically lower standard deviation of returns. C their inclusion is expected to reduce the portfolio's Sharpe ratio.

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.

Anderb, a portfolio manager for XYZ Investment Management Company—a registered investment organization that advises investment firms and private accounts—was promoted to that position three years ago. Bates, her supervisor, is responsible for reviewing Anderb's portfolio account transactions and her required monthly reports of personal stock transactions. Anderb has been using Jonelli, a broker, almost exclusively for brokerage transactions for the portfolio account. For securities in which Jonelli's firm makes a market, Jonelli has been giving Anderb lower prices for personal purchases and higher prices for personal sales than Jonelli gives to Anderb's portfolio accounts and other investors. Anderb has been filing monthly reports with Bates only for those months in which she has no personal transactions, which is about every fourth month. Which of the following is most likely to be a violation of the Code and Standards? A Anderb failed to disclose to her employer her personal transactions. B Anderb owned the same securities as those of her clients. C Bates allowed Anderb to use Jonelli as her broker for personal trades.

Apex Consignment sells items over the internet for individuals on a consignment basis. Apex receives the items from the owner, lists them for sale on the internet, and receives a 25 percent commission for any items sold. Apex collects the full amount from the buyer and pays the net amount after commission to the owner. Unsold items are returned to the owner after 90 days. During 2009, Apex had the following information: - Total sales price of items sold during 2009 on consignment was €2,000,000. - Total commissions retained by Apex during 2009 for these items was €500,000. How much revenue should Apex report on its 2009 income statement? A €500,000. B €2,000,000. C €1,500,000.

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

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.

Assume U.S. GAAP holds. An analyst gathered the following information about a company for a given year: - Net income 12.5m - Depreciation 1.25m - Amortization 0.5m - Interest expense 3m - Net capital expenditure 1.75m - Dividends paid 0.25m - Working capital investment 1.15m - Tax rate 35% Free cash flow to the firm for the year is closest to: A $13.3m B $13.05m C $9.4m

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 the beginning of 2009, Glass Manufacturing purchased a new machine for its assembly line at a cost of $600,000. The machine has an estimated useful life of 10 years and estimated residual value of $50,000. Under the straight-line method, how much depreciation would Glass take in 2010 for financial report- ing purposes? A $55,000. B $60,000. C $65,000.

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.

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 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.

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

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

Brown Corporation had average days of sales outstanding of 19 days in the most recent fiscal year. Brown wants to improve its credit policies and collection practices and decrease its collection period in the next fiscal year to match the industry average of 15 days. Credit sales in the most recent fiscal year were $300 million, and Brown expects credit sales to increase to $390 million in the next fiscal year. To achieve Brown's goal of decreasing the collection period, the change in the average accounts receivable balance that must occur is closest to: A +$0.41 million. B -$0.41 million. C -$1.22 million.

Brown works for an investment counseling firm. Green, a new client of the firm, is meeting with Brown for the first time. Green used another counseling firm for financial advice for years, but she has switched her account to Brown's firm. After spending a few minutes getting acquainted, Brown explains to Green that she has discovered a highly undervalued stock that offers large potential gains. She recommends that Green purchase the stock. Brown has committed a violation of the Standards. What should she have done differently? A Brown should have determined Green's needs, objectives, and tolerance for risk before making a recommendation of any type of security. B Brown should have thoroughly explained the characteristics of the company to Green, including the characteristics of the industry in which the company operates. C Brown should have explained her qualifications, including her education, training, and experience and the meaning of the CFA designation.

In early 2017 Sanborn Company must pay the tax authority €37,000 on the income it earned in 2016. This amount was recorded on the company's 31 December 2016 financial statements as: A taxes payable. B income tax expense. C a deferred tax liability.

Cannan has been working from home on weekends and occasionally saves correspondence with clients and completed work on her home computer. Because of worsening market conditions, Cannan is one of several employees released by her firm. While Cannan is looking for a new job, she uses the files she saved at home to request letters of recommendation from former clients. She also provides to prospective clients some of the reports as examples of her abilities. A Cannan violated the Code and Standards because she did not receive per-mission from her former employer to keep or use the files after her employment ended. B Cannan did not violate the Code and Standards because the files were cre- ated and saved on her own time and computer. C Cannan violated the Code and Standards because she is prohibited from saving files on her home computer.

Capricorn Fund of Funds invests GBP 100 million in each of Alpha Hedge Fund and ABC Hedge Fund. Capricorn FOF has a "1 and 10" fee structure. Management fees and incentive fees are calculated independently at the end of each year. After one year, net of their respective management and incentive fees, the investment in Alpha is valued at GBP80 million and the investment in ABC is valued at GBP140 million. The annual return to an investor in Capricorn, net of fees assessed at the fund of funds level, is closest to: A 7.9% B 8.0% C 8.1%

Caroline Rogers believes the price of Gamma Corp. stock will go down in the near future. She has decided to sell short 200 shares of Gamma Corp. at the current market price of €47. The initial margin requirement is 40 percent. Which of the following is an appropriate statement regarding the margin requirement that Rogers is subject to on this short sale? A She will need to contribute €3,760 as margin. B She will need to contribute €5,640 as margin. C She will only need to leave the proceeds from the short sale as deposit and does not need to contribute any additional funds.

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.

Carter works for Invest Today, a local asset management firm. A broker that provides Carter with proprietary research through client brokerage arrangements is offering a new trading service. The broker is offering low-fee, execution-only trades to complement its traditional full-service, execution and research trades. To entice Carter and other asset managers to send additional business its way, the broker will apply the commissions paid on the new service toward satisfying the brokerage commitment of the prior full-service arrangements. Carter has always been satisfied with the execution provided on the full-service trades, and the new low-fee trades are comparable to the fees of other brokers currently used for the accounts that prohibit soft dollar arrangements. A Carter can trade for his accounts that prohibit soft dollar arrangements under the new low-fee trading scheme. B Carter cannot use the new trading scheme because the commissions are prohibited by the soft dollar restrictions of the accounts. C Carter should trade only through the new low-fee scheme and should increase his trading volume to meet his required commission commitment.

Cell Services Inc. (CSI) had 1,000,000 average shares outstanding during all of 2009. During 2009, CSI also had 10,000 options outstanding with exercise prices of $10 each. The average stock price of CSI during 2009 was $15. For purposes of computing diluted earnings per share, how many shares would be used in the denominator? A 1,003,333. B 1,006,667. C 1,010,000.

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

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.

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 the following statements: Statement 1: Apart from normal dividends, cumulative preference shares are entitled to additional dividends if the company's profits exceed a pre‐specified level. Statement 2: From the investor's perspective, callable common shares are more risky than putable common shares. Which of the following is most likely? A Only Statement 1 is incorrect. B Only Statement 2 is incorrect. C Both statements are correct.

Consider the following statements: Statement 1: Net exports vary negatively with domestic income and with the domestic price level. Statement 2: The government's fiscal deficit varies negatively with domestic income. Which of the following is most likely? A Both statements are correct. B Only one statement is correct. C Both statements are incorrect.

Consider the following statements: Statement 1: The Sharpe ratio for commodities as an asset class has historically been higher than bonds but lower than stocks. Statement 2: The volatility of commodity prices tends to be higher than the volatility for reported consumer price inflation. Which of the following is most likely? A Only Statement 1 is incorrect. B Only Statement 2 is incorrect. C Both statements are correct.

In descriptive statistics, an example of a parameter is the: A median of a population. B mean of a sample of observations. C standard deviation of a sample of observations.

During a round of golf, Rodriguez, chief financial officer of Mega Retail, mentions to Hart, a local investment adviser and long-time personal friend, that Mega is having an exceptional sales quarter. Rodriguez expects the results to be almost 10% above the current estimates. The next day, Hart initiates the purchase of a large stake in the local exchange-traded retail fund for her personal account. A Hart violated the Code and Standards by investing in the exchange-traded fund that included Mega Retail. B Hart did not violate the Code and Standards because she did not invest directly in securities of Mega Retail. C Rodriguez did not violate the Code and Standards because the comments made to Hart were not intended to solicit an investment in Mega Retail.

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

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.

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

For a T-bill purchased at $97,000 that matures at $100,000 in 300 days, which of the following yields is closest to 3.71%? A Money market yield B Holding period yield (HPY) C Effective annual yield

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.

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

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

Given that an equal‐weighted index and a market‐capitalization‐weighted index consist of the same securities, underperformance by small‐cap stocks will most likely result in the market‐ capitalization‐weighted index exhibiting: A A greater price return than the equal‐weighted index. B The same price return as the equal‐weighted index. C A lower price return than the equal‐weighted index.

Given the stated annual interest rate, an increase in the frequency of compounding most likely: A Increases the FV but decreases the PV of an amount. B Increases both the FV and PV of an amount. C Decreases both the FV and PV of an amount.

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.

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 a decrease in the selling price of a company's only product results in an increase in the company's total revenue, the demand for the company's product is: A elastic B unit-elastic C inelastic

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 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.

If the probability that Zolaf Company sales exceed last year's sales is 0.167, the odds for exceeding sales are closest to: A 1to5. B 1to6. C 5to1.

If two variables do not have a strong (linear) relationship, the correlation coefficient between the two variables will be closest to: A 0 B -1 C +1

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 forward contracts, futures contracts: A trade on organized exchanges B have contract sizes tailored to investor needs C have negotiable expiration dates

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.

Jupiter Fund of Funds invests $250 million in each of two funds, Venus Hedge Fund and Mars Hedge Fund. Jupiter has a "2 and 10" fee structure. Both hedge funds charge a 2% management fee based on assets under management at the end of the year and a 20% incentive fee, which is calculated net of management fee. After one year, Jupiter's investments in Venus and Mars are valued at $230 million and $320 million respectively, after accounting for their respective management and incentive fees. The annual return to an investor in Jupiter, net of fees, at the fund of funds level is closest to: A 6.80%. B 20.00%. C 2.63%.

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

Laura Jameson, CFA, is a portfolio manager at ALT Investments. Her firm is allocated a very significant number of shares in the IPO of Hotstock Ltd., a company that Jameson is very bullish on. Excited by the prospect of earning an excellent return for her clients, Jameson allocates the shares evenly across all accounts under management including those of her relatives. Jameson most likely: A Violated Standard III (C): Suitability. B Violated Standard III (A): Loyalty, Prudence and Care. C Has not violated the Code and the Standards.

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.

Long has been asked to be the keynote speaker at an upcoming investment conference. The event is being hosted by one of the third-party investment managers currently used by his pension fund. The manager offers to cover all conference and travel costs for Long and make the conference registrations free for three additional members of his investment management team. To ensure that the conference obtains the best speakers, the host firm has arranged for an exclusive golf outing for the day following the conference on a local championship-caliber course. Which of the following is least likely to violate Standard I(B)? A Long may accept only the offer to have his conference-related expenses paid by the host firm. B Long may accept the offer to have his conference-related expenses paid and may attend the exclusive golf outing at the expense of the hosting firm. C Long may accept the entire package of incentives offered to speak at this conference.

Midland Brands issues three-year bonds dated 1 January 2015 with a face value of $5,000,000. The market interest rate on bonds of comparable risk and term is 3%. If the bonds pay 2.5% annually on 31 December, bonds payable when issued are most likely reported as closest to: A $4,929,285. B $5,000,000. C $5,071,401.

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.

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.

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.

On January 1, 2008, Alpha Manufacturers purchased a machine for $2.5 million. For accounting purposes, the asset is depreciated on a 10% straight‐line basis. For tax purposes it is depreciated on a 15% straight‐line basis. On January 1, 2009, the machine is revalued at $2.6 million and it is estimated that the machine will be used for a further 25 years after revaluation. For tax purposes, the revaluation is not recognized. Given a tax rate of 40% and that the machine has zero salvage value for tax and financial reporting purposes, the deferred tax asset or liability on December 31, 2009, is closest to: A $158,400. B $50,000. C $298,400.

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.

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

Purple Fleur S.A., a retailer of floral products, reported cost of goods sold for the year of $75 million. Total assets increased by $55 million, but inventory declined by $6 million. Total liabilities increased by $45 million, and accounts payable increased by $2 million. The cash paid by the company to its suppliers is most likely closest to: A $67 million. B $79 million. C $83 million.

Red Road Company, a consulting company, reported total revenues of $100 million, total expenses of $80 million, and net income of $20 million in the most recent year. If accounts receivable increased by $10 million, how much cash did the company receive from customers? A $90 million. B $100 million. C $110 million.

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 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.

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.

Townsend was recently appointed to the board of directors of a youth golf program that is the local chapter of a national not-for-profit organization. The program is beginning a new fund-raising campaign to expand the number of annual scholarships it provides. Townsend believes many of her clients make annual donations to charity. The next week in her regular newsletter to all cli- ents, she includes a small section discussing the fund-raising campaign and her position on the organization's board. A Townsend did not violate the Code and Standards. B Townsend violated the Code and Standards by soliciting donations from her clients through the newsletter. C Townsend violated the Code and Standards by not getting approval of the organization before soliciting her clients.

Twelve athletes participate in a race. The number of different ways that the gold, silver, and bronze medals can be awarded to these athletes is closest to: A 1,320 B 220 C 36

Two years ago, a company issued $20 million in long-term bonds at par value with a coupon rate of 9 percent. The company has decided to issue an additional $20 million in bonds and expects the new issue to be priced at par value with a coupon rate of 7 percent. The company has no other debt outstanding and has a tax rate of 40 percent. To compute the company's weighted average cost of capital, the appropriate after-tax cost of debt is closest to: A 4.2%. B 4.8%. C 5.4%.

US and Spanish bonds have return standard deviations of 0.64 and 0.56, respectively. If the correlation between the two bonds is 0.24, the covariance of returns is closest to: A 0.086. B 0.670. C 0.781.

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

Under the effective interest method, a company that issues zero-coupon bonds will least likely report: A A decrease in its debt‐to‐assets ratio each year over the term of the bonds. B A higher cash outflow from financing activities upon maturity than the inflow recorded under financing activities upon issuance. C No related cash outflows from operating activities for any period during the bond's term.

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 of the following types of trade restrictions is the welfare loss to the importing company most likely to be the lowest? A Tariffs B Quotas C Voluntary export restraints

Using the same information as in Question 8, how much profit will Argo report for 2009 using the cost recovery method? A None. B $600,000. C $1,000,000.

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.

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

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 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 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 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 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.

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.

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 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 Canadian life insurance company has an issue of 4.80 percent, $25 par value, perpetual, non-convertible, non-callable preferred shares outstanding. The required rate of return on similar issues is 4.49 percent. The intrinsic value of a preferred share is closest to: A $25.00. B $26.75. C $28.50.

A bond is currently trading for 98.722 per 100 of par value. If the bond's yield- to-maturity (YTM) rises by 10 basis points, the bond's full price is expected to fall to 98.669. If the bond's YTM decreases by 10 basis points, the bond's full price is expected to increase to 98.782. The bond's approximate convexity is closest to: A 0.071. B 70.906. C 1,144.628.

A bond offers an annual coupon rate of 5%, with interest paid semiannually. The bond matures in seven years. At a market discount rate of 3%, the price of this bond per 100 of par value is closest to: A 106.60. B 112.54. C 143.90.

A bond with exactly nine years remaining until maturity offers a 3% coupon rate with annual coupons. The bond, with a yield-to-maturity of 5%, is priced at 85.784357 per 100 of par value. The estimated price value of a basis point for the bond is closest to: A 0.0086. B 0.0648. C 0.1295.

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 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 invests €20,000 in a four-year certificate of deposit (CD) that annually pays interest of 3.5%. The annual CD interest payments are automatically reinvested in a separate savings account at a stated annual interest rate of 2% compounded monthly. At maturity, the value of the combined asset is closest to: A €21,670. B €22,890. C €22,950.

A company acquires a patent with an expiration date in six years for ¥100 mil- lion. The company assumes that the patent will generate economic benefits that will decline over time and decides to amortize the patent using the double- declining balance method. The annual amortization expense in Year 4 is closest to: A ¥6.6 million. B ¥9.9 million. C ¥19.8 million.

A company has paid cash for an expense that has been incurred, but not yet recognized on the financial statements. The company will most likely record: A An accrued expense, an asset. B A prepaid expense, an asset. C An accrued revenue, a liability.

A company has total liabilities of £35 million and total stockholders' equity of £55 million. Total liabilities are represented on a vertical common-size balance sheet by a percentage closest to: A 35%. B 39%. C 64%.

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 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 current 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 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 over a period of time is best evaluated using the: A balance sheet. B income statement. C cash flow statement.

A limit sell order placed above the best offer is most likely: A Referred to as a marketable sell limit order. B Referred to as behind the market. C Said to have created a new market.

A perpetual preferred stock makes its first quarterly dividend payment of $2.00 in five quarters. If the required annual rate of return is 6% compounded quarterly, the stock's present value is closest to: A $31. B $126. C $133.

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.

A portfolio manager annually outperforms her benchmark 60% of the time. Assuming independent annual trials, what is the probability that she will outperform her benchmark four or more times over the next five years? A 0.26 B 0.34 C 0.48

After interviewing a client in order to prepare a written investment policy statement (IPS), you have established the following: - The client has earnings that have exceeded €120,000 (pre-tax) each year for the past five years. - She has no dependents. - The client's subsistence needs are approximately €45,000 per year. - The client states that she feels uncomfortable with her lack of understanding of securities markets. - All of the client's current savings are invested in short-term securities guaranteed by an agency of her national government. - The client's responses to a standard risk assessment questionnaire suggest she has low risk tolerance. The client is best described as having a: A low ability to take risk, but a high willingness to take risk. B high ability to take risk, but a low willingness to take risk. C high ability to take risk and a high willingness to take risk.

All of the following are current assets except: A cash. B goodwill. C inventories.

An affirmative 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 analyst gathered the following information about a company that follows U.S. GAAP for a given year: - Beginning shareholders' equity $1,350,000 - Net income $250,000 - Dividends declared $75,000 - Dividends paid $85,000 - Ending shareholders' equity $1,575,000 The company's comprehensive income for the year is closest to: A $50,000 B $300,000 C $60,000

An analyst has gathered the following information for the Oudin Corporation: Expected earnings per share = €5.70 Expected dividends per share = €2.70 Dividends are expected to grow at 2.75 percent per year indefinitely The required rate of return is 8.35 percent Based on the information provided, the price/earnings multiple for Oudin is closest to: A 5.7. B 8.5. C 9.4.

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 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.

An educational institute that provides classes for the CFA exam has two batches enrolled for the June 2010 exam. Historically it has been observed that 69% of the candidates enroll in the weekday batch, while the remaining 31% prefer the weekend batch. The historical pass rate for the weekday batch has been 52%, and has been 63% for the weekend batch. Given that a student failed the exam, the probability that she was from the weekend batch is closest to: A 34.6% B 25.72% C 11.47%

An exchange rate between two currencies has increased to 1.4500. If the base currency has appreciated by 8% against the price currency, the initial exchange rate between the two currencies was closest to: A 1.3340. B 1.3426. C 1.5660.

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 the price level would shift the: A IS curve. B LM curve. C aggregate demand curve.

An investment banking department of a brokerage firm often receives material nonpublic information that could have considerable value if used in advising the firm's brokerage clients. In order to conform to the Code and Standards, which one of the following is the best policy for the brokerage firm? A Permanently prohibit both "buy" and "sell" recommendations of the stocks of clients of the investment banking department. B Establish physical and informational barriers within the firm to prevent the exchange of information between the investment banking and brokerage operations. C Monitor the exchange of information between the investment banking department and the brokerage operation.

An investment management firm has been hired by ETV Corporation to work on an additional public offering for the company. The firm's brokerage unit now has a "sell" recommendation on ETV, but the head of the investment banking department has asked the head of the brokerage unit to change the recommendation from "sell" to "buy." According to the Standards, the head of the brokerage unit would be permitted to: A Increase the recommendation by no more than one increment (in this case, to a "hold" recommendation). B Place the company on a restricted list and give only factual information about the company. C Assign a new analyst to decide if the stock deserves a higher rating.

An investor buys a bond for $980. After six months, she collects a semiannual coupon of $30 and sells the bond for $990. Her six-month holding period yield (HPY) is closest to: A 1.0%. B 4.1%. C 8.3%.

An investor chooses to invest in a brownfield rather than a greenfield infra- structure 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 likely 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 performs the following transactions on the shares of a firm. - At t = 0, she purchases a share for $1,000. - At t = 1, she receives a dividend of $25 and then purchases three additional shares for $1,055 each. - At t = 2, she receives a total dividend of $100 and then sells the four shares for $1,100 each. The money-weighted rate of return is closest to: A 4.5%. B 6.9%. C 7.3%.

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.

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.

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.

During 2009, Accent Toys Plc., which began business in October of that year, purchased 10,000 units of a toy at a cost of ₤10 per unit in October. The toy sold well in October. In anticipation of heavy December sales, Accent purchased 5,000 additional units in November at a cost of ₤11 per unit. During 2009, Accent sold 12,000 units at a price of ₤15 per unit. Under the first in, first out (FIFO) method, what is Accent's cost of goods sold for 2009? A ₤120,000. B ₤122,000. C ₤124,000.

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.

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.

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.

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 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.

For its fiscal year-end, Calvan Water Corporation (CWC) reported net income of $12 million and a weighted average of 2,000,000 common shares outstanding. The company paid $800,000 in preferred dividends and had 100,000 options outstanding with an average exercise price of $20. CWC's market price over the year averaged $25 per share. CWC's diluted EPS is closest to: A $5.33. B $5.54. C $5.94.

From the standpoint of taxes, investors will benefit from: A deferring taxes to the future if tax rates will be higher in the future B realizing gains via stock repurchases as opposed to receiving the same gains as dividends C selling appreciated shares to meet cash needs instead of borrowing against them

Given a €1,000,000 investment for four years with a stated annual rate of 3% compounded continuously, the difference in its interest earnings compared with the same investment compounded daily is closest to: A €1. B €6. C €455.

Grandparents are funding a newborn's future university tuition costs, estimated at $50,000/year for four years, with the first payment due as a lump sum in 18 years. Assuming a 6% effective annual rate, the required deposit today is closest to: A $60,699. B $64,341. C $68,201.

Hideki Corporation has just paid a dividend of ¥450 per share. Annual dividends are expected to grow at the rate of 4 percent per year over the next four years. At the end of four years, shares of Hideki Corporation are expected to sell for ¥9000. If the required rate of return is 12 percent, the intrinsic value of a share of Hideki Corporation is closest to: A ¥5,850. B ¥7,220. C ¥7,670.

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.

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

If the GDP deflator values for 2008 and 2010 were 190 and 212.8, respectively, which of the following best describes the annual growth rate of the overall price level? A 5.8%. B 6%. C 12%.

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

One of the discretionary accounts managed by Farnsworth is the Jones Corporation employee profit-sharing plan. Jones, the company president, recently asked Farnsworth to vote the shares in the profit-sharing plan in favor of the slate of directors nominated by Jones Corporation and against the directors sponsored by a dissident stockholder group. Farnsworth does not want to lose this account because he directs all the account's trades to a brokerage firm that provides Farnsworth with useful information about tax-free investments. Although this information is not of value in managing the Jones Corporation account, it does help in managing several other accounts. The brokerage firm providing this information also offers the lowest commissions for trades and provides best execution. Farnsworth investigates the director issue, concludes that the management-nominated slate is better for the long-run performance of the company than the dissident group's slate, and votes accordingly. Farnsworth: A Violated the Standards in voting the shares in the manner requested by Jones but not in directing trades to the brokerage firm. B Did not violate the Standards in voting the shares in the manner requested by Jones or in directing trades to the brokerage firm. C Violated the Standards in directing trades to the brokerage firm but not in voting the shares as requested by Jones.

Paper was recently terminated as one of a team of five managers of an equity fund. The fund had two value-focused managers and terminated one of them to reduce costs. In a letter sent to prospective employers, Paper presents, with written permission of the firm, the performance history of the fund to demonstrate his past success. A Paper did not violate the Code and Standards. B Paper violated the Code and Standards by claiming the performance of the entire fund as his own. C Paper violated the Code and Standards by including the historical results of his prior employer.

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.

Phil Jones, CFA, has just finished researching Alpha One Inc. and is about to issue an unfavorable report on the company. His manager does not want him to state any adverse opinions about Alpha One, as it could adversely affect their firm's relations with the company, which is an important investment banking client. Which of the following actions by the manager most likely violates Standard I (B): Independence and Objectivity? A Putting Alpha One on a restricted list B Asking Jones to issue a favorable report C Asking Jones to only state facts about the company

Pietro, president of Local Bank, has hired the bank's market maker, Vogt, to seek a merger partner. Local is currently not listed on a stock exchange and has not reported that it is seeking strategic alternatives. Vogt has discussed the possibility of a merger with several firms, but they have all decided to wait until after the next period's financial data are available. The potential buyers believe the results will be worse than the results of prior periods and will allow them to pay less for Local Bank. Pietro wants to increase the likelihood of structuring a merger deal quickly. Which of the following actions would most likely be a violation of the Code and Standards? A Pietro could instruct Local Bank to issue a press release announcing that it has retained Vogt to find a merger partner. B Pietro could place a buy order for 2,000 shares (or four times the average weekly volume) through Vogt for his personal account. C After confirming with Local's chief financial officer, Pietro could instruct Local to issue a press release reaffirming the firm's prior announced earnings guidance for the full fiscal year.

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.

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.

Quinn sat for the Level III CFA exam this past weekend. He updates his resume with the following statement: "In finishing the CFA Program, I improved my skills related to researching investments and managing portfolios. I will be eligible for the CFA charter upon completion of the required work experience." A Quinn violated the Code and Standards by claiming he improved his skills through the CFA Program. B Quinn violated the Code and Standards by incorrectly stating that he is eligible for the CFA charter. C Quinn did not violate the Code and Standards with his resume update.

Relative to negative bond covenants, positive covenants are most likely: A legally enforceable. B cheaper for the issuers. C enacted at the time of the bond issue.

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.

Rose, a portfolio manager for a local investment advisory firm, is planning to sell a portion of his personal investment portfolio to cover the costs of his child's academic tuition. Rose wants to sell a portion of his holdings in Household Products, but his firm recently upgraded the stock to "strong buy." Which of the following describes Rose's options under the Code and Standards? A Based on his firm's "buy" recommendation, Rose cannot sell the shares because he would be improperly prospering from the inflated recommendation. B Rose is free to sell his personal holdings once his firm is properly informed of his intentions. C Rose can sell his personal holdings but only when a client of the firm places an order to buy shares of Household.

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.

Rule has worked as a portfolio manager for a large investment management firm for the past 10 years. Rule earned his CFA charter last year and has decided to open his own investment management firm. After leaving his current employer, Rule creates some marketing material for his new firm. He states in the material, "In earning the CFA charter, a highly regarded credential in the investment management industry, I further enhanced the portfolio management skills learned during my professional career. While completing the examination process in three consecutive years, I consistently received the highest possible scores on the topics of Ethics, Alternative Investments, and Portfolio Management." Has Rule violated Standard VII(B)-Reference to CFA Institute, the CFA Designation, and the CFA Program in his marketing material? A Rule violated Standard VII(B) in stating that he completed the exams in three consecutive years. B Rule violated Standard VII(B) in stating that he received the highest scores in the topics of Ethics, Alternative Investments, and Portfolio Management. C Rule did not violate Standard VII(B).

Scott works for a regional brokerage firm. He estimates that Walkton Industries will increase its dividend by US$1.50 a share during the next year. He realizes that this increase is contingent on pending legislation that would, if enacted, give Walkton a substantial tax break. The US representative for Walkton's home district has told Scott that, although she is lobbying hard for the bill and prospects for its passage are favorable, concern of the US Congress over the federal deficit could cause the tax bill to be voted down. Walkton Industries has not made any statements about a change in dividend policy. Scott writes in his research report, "We expect Walkton's stock price to rise by at least US$8.00 a share by the end of the year because the dividend will increase by US$1.50 a share. Investors buying the stock at the current time should expect to realize a total return of at least 15% on the stock." According to the Standards: A Scott violated the Standards because he used material inside information. B Scott violated the Standards because he failed to separate opinion from fact. C Scott violated the Standards by basing his research on uncertain predictions of future government action.

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.

Smith is a financial analyst with XYZ Brokerage Firm. She is preparing a purchase recommendation on JNI Corporation. Which of the following situations is most likely to represent a conflict of interest for Smith that would have to be disclosed? A Smith frequently purchases items produced by JNI. B XYZ holds for its own account a substantial common stock position in JNI. C Smith's brother-in-law is a supplier to JNI.

Smith, a research analyst with a brokerage firm, decides to change his recommendation for the common stock of Green Company, Inc., from a "buy" to a "sell." He mails this change in investment advice to all the firm's clients on Wednesday. The day after the mailing, a client calls with a buy order for 500 shares of Green Company. In this circumstance, Smith should: A Accept the order. B Advise the customer of the change in recommendation before accepting the order. C Not accept the order because it is contrary to the firm's recommendation.

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 painting is produced and sold in 2010 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.

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.

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 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 current price of a share of SPDRs is $113. A trader has just bought call options on shares of SPDRs for a premium of $3 per share. The call options expire in five months and have an exercise price of $120 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 $120 per share. B above $120 per share. C above $123 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 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 best financial statement to use to find information about what a company owns and owes others is called the: A income statement B balance sheet C cash flow statement

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.

Which of the following embedded options is most likely to favor an issuer of securities? A A conversion option B A doubling option C A floor on a floating‐rate security

Trumpit Resorts Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 2.2. It also has $10 million face valueof bonds that have five years remaining to maturity and 8 percent coupon with semi-annual payments, and are priced to yield 13.65 percent. If Trumpit issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65 percent; if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16 percent. Trumpit has learned that it can issue new common stock at $10 a share. The current risk-free rate of interest is 3 percent and the expected market return is 10 percent. Trumpit's marginal tax rate is 30 percent. If Trumpit raises $7.5 million of new capital while maintaining the same debt-to-equity ratio, its weighted average cost of capital is closest to: A 14.5 percent. B 15.5 percent. C 16.5 percent.

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.

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.

Unearned revenue is most likely classified as: A Owner's equity. B Liability. C Asset.

United Capital is a hedge fund with $250 million of initial capital. United charges a 2% management fee based on assets under management at year end, and a 20% incentive fee based on returns in excess of an 8% hurdle rate. In its first year, United appreciates 16%. Assume management fees are calculated using end-of-period valuation. The investor's net return assuming the performance fee is calculated net of the management fee is closest to: A 11.58% B 12.54% C 12.80%

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.

Ward is scheduled to visit the corporate headquarters of Evans Industries. Ward expects to use the information he obtains there to complete his research report on Evans stock. Ward learns that Evans plans to pay all of Ward's expenses for the trip, including costs of meals, hotel room, and air transportation. Which of the following actions would be the best course for Ward to take under the Code and Standards? A Accept the expense-paid trip and write an objective report. B Pay for all travel expenses, including costs of meals and incidental items. C Accept the expense-paid trip but disclose the value of the services accepted in the report.

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 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 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.

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 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 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 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 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 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 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 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 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 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.

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 tests is most likely used when testing the variance of a single normally distributed population? A T‐test B Chi‐square test C F‐test

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 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 be valid conclusions from an analysis of the cash flow statement for Telefónica Group presented in Exhibit 3? A The primary use of cash is financing activities. B The primary source of cash is operating activities. C Telefónica classifies interest received as an operating activity.

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 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 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 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 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.

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.

Willier is the research analyst responsible for following Company X. All the information he has accumulated and documented suggests that the outlook for the company's new products is poor, so the stock should be rated a weak "hold." During lunch, however, Willier overhears a financial analyst from another firm whom he respects offer opinions that conflict with Willier's forecasts and expectations. Upon returning to his office, Willier releases a strong "buy" recommendation to the public. Willier: A Violated the Standards by failing to distinguish between facts and opinions in his recommendation. B Violated the Standards because he did not have a reasonable and adequate basis for his recommendation. C Was in full compliance with the Standards.

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 mar- ket 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 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 rebalancing of a portfolio's composition is most likely to occur in the: A planning step. B feedback step. C execution step.

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.

Zimt AG presents its financial statements in accordance with US GAAP. In 2017, Zimt discloses a valuation allowance of $1,101 against total deferred tax assets of $19,201. In 2016, 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 2017. B expectations of future earning power has increased. C expectations of future earning power has decreased.

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 widen: A in a strengthening economy. B as the credit cycle improves. C in periods of heavy new issue supply and low borrower demand.

A former hedge fund manager, Jackman, has decided to launch a new private wealth management firm. From his prior experiences, he believes the new firm needs to achieve US$1 million in assets under management in the first year. Jackman offers a $10,000 incentive to any adviser who joins his firm with the minimum of $200,000 in committed investments. Jackman places notice of the opening on several industry web portals and career search sites. Which of the following is correct according to the Code and Standards? A A member or candidate is eligible for the new position and incentive if he or she can arrange for enough current clients to switch to the new firm and if the member or candidate discloses the incentive fee. B A member or candidate may not accept employment with the new firm because Jackman's incentive offer violates the Code and Standards. C A member or candidate is not eligible for the new position unless he or she is currently unemployed because soliciting the clients of the member's or candidate's current employer is prohibited.

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 dis- count 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 fund manager does not compare his portfolio with the benchmark in terms of: A performance B composition C fees

A hedge fund has the following fee structure: Annual management fee based on year-end AUM 2% Incentive fee 20% Hurdle rate before incentive fee collection starts 4% Current high-water mark $610 million The fund has a value of $583.1 million at the beginning of the year. After one year, it has a value of $642 million before fees. The net return to an investor for this year is closest to: A 6.72% B 6.80% C 7.64%

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 fund is estimating the value of a privately held company that is financed with both debt and equity, is generating positive revenues, and has negative EBITDA. The private equity fund is most likely able to estimate the company's equity value using: A net income multiples. B market value of its assets. C expected free cash flow to equity and cost of equity.

A stock is priced at $100.00 and follows a one-period binomial process with an up move that equals 1.05 and a down move that equals 0.97. If 1 million Bernoulli trials are conducted, and the average terminal stock price is $102.00, the probability of an up move (p) is closest to: A 0.375. B 0.500. C 0.625.

ABC Investment Management acquires a new, very large account with two concentrated positions. The firm's current policy is to add new accounts for the purpose of performance calculation after the first full month of management. Cupp is responsible for calculating the firm's performance returns. Before the end of the initial month, Cupp notices that one of the significant holdings of the new accounts is acquired by another company, causing the value of the investment to double. Because of this holding, Cupp decides to account for the new portfolio as of the date of transfer, thereby allowing ABC Investment to reap the positive impact of that month's portfolio return. A Cupp did not violate the Code and Standards because the GIPS standards allow composites to be updated on the date of large external cash flows. B Cupp did not violate the Code and Standards because companies are allowed to determine when to incorporate new accounts into their composite calculation. C Cupp violated the Code and Standards because the inclusion of the new account produces an inaccurate calculation of the monthly results according to the firm's stated policies.

Abeer Dagha, CFA, has just been hired by Superior Investments after spending 20 years with Quality Investments. When Dagha begins her work with Superior Investments she wants to get in touch with her former clients because she knows them well and she is confident that they will follow her to her new firm. Dagha would most likely: A Be in violation of Standard IV (A): Loyalty if she has not signed a non‐compete agreement with Quality Investments and decides to contact her former clients. B Be in violation of Standard IV (A): Loyalty if she uses client lists, which she took from Quality Investments with permission, to get in touch with her former clients. C Not be in violation of Standard IV (A): Loyalty if she has not signed a non‐compete agreement with Quality Investments, and uses contact information that she has retained in her memory.

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.

Alexis King, CFA, an investment manager at Invest One Corporation, is asked by her supervisor to make a presentation to a potential client. In the presentation, King uses weighted composites of all similar portfolios to present the firm's performance over the past 10 years, during which the firm earned an average return of 13%. Which of the following statements is most accurate? A King has violated Standard III (D): Performance Presentation. B King has violated Standard I (C): Misrepresentation. C King has not violated any standards.

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 analyst collects the following information about an investment's returns over the last 24 months: Mean return = 18% Standard deviation of returns = 12% Given a risk‐free rate of 5%, the Sharpe ratio for this investment is closest to: A 2.6 B 0.92 C 1.083

An analyst is attempting to value shares of the Dominion Company. The company has just paid a dividend of $0.58 per share. Dividends are expected to grow by 20 percent next year and 15 percent the year after that. From the third year onward, dividends are expected to grow at 5.6 percent per year indefinitely. If the required rate of return is 8.3 percent, the intrinsic value of the stock is closest to: A $26.00. B $27.00. C $28.00.

Consider the following statements: Statement 1: In the first year of a company's operations, FIFO and LIFO will result in the same amount for cost of goods available for sale if prices have been declining over the year. Statement 2: In a period of falling prices, use of LIFO will enable a firm to retain more cash. Which of the following is most likely? A Both statements are incorrect. B Only Statement 1 is incorrect. C Only Statement 2 is incorrect.

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.

Consider the following statements: Statement 1: The drawback of credit‐linked bonds is that they can contribute to further downgrades or eventual default of the issuer. Statement 2: TIPS offer investors a fixed real return that is protected from inflation risk. Which of the following is most likely? A Only Statement 1 is correct. B Only Statement 2 is correct. C Both statements are correct.

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.

Andrews, a private wealth manager, is conducting interviews for a new research analyst for his firm. One of the candidates is Wright, an analyst with a local investment bank. During the interview, while Wright is describing his analytical skills, he mentions a current merger in which his firm is acting as the adviser. Andrews has heard rumors of a possible merger between the two companies, but no releases have been made by the companies concerned. Which of the following actions by Andrews is least likely a violation of the Code and Standards? A Waiting until the next day before trading on the information to allow time for it to become public. B Notifying all investment managers in his firm of the new information so none of their clients are disadvantaged. C Placing the securities mentioned as part of the merger on the firm's restricted trading list.

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 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.

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.

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.

Aztec Ltd. is considering investing $650 million in a new project. The CFO of the company tells the directors that the present value of the net cash flows that will be generated from the project will be around $800 million. The company has 7 million shares outstanding with a market price of $120 each. The price of the company's shares if it undertakes the new project will be closest to: A $114.29. B $135.72. C $141.43.

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.

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.

Cash flows from taxes on income must be separately disclosed under: A IFRS only. B US GAAP only. C both IFRS and US GAAP.

Cavalier Copper Mines has $840 million in total liabilities and $520 million in shareholders' equity. It discloses operating lease commitments over the next five years with a present value of $100 million. If the lease commitments are treated as debt, the debt-to-total-capital ratio is closest to: A 0.58. B 0.62. C 0.64.

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.

Cinnamon, Inc. recorded a total deferred tax asset in 2017 of $12,301, offset by a $12,301 valuation allowance. Cinnamon most likely: A fully utilized the deferred tax asset in 2017. 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.

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.

Consider the following information regarding a convertible bond: Par value = $1,000 Conversion ratio = 30:1 Convertible bond price = $1,020 Given that the conversion premium is $30, the current share price is closest to: A $30.00 B $32.33 C $33.00

Consider the following statements: Statement 1: Any coupon income received from a bond during the term of the repo belongs to the buyer. Statement 2: The repo margin serves to protect the seller against a decline in the value of the collateral over the term of the repo. Which of the following is most likely? A Only Statement 1 is correct. B Only Statement 2 is correct. C Both statements are incorrect.

Consider the following statements: Statement 1: Dual-class share structures can easily be changed over time. Statement 2: Activist investors tend to have little impact on the company's long-term investors. Which of the following is most likely? A Only Statement 1 is correct. B Only Statement 2 is correct. C Both statements are incorrect.

Consider the following statements: Statement 1: Given the term to maturity, a corporate bond cannot possibly offer a lower yield than a U.S. Treasury. Statement 2: U.S. Treasures are free of credit risk, but not risk‐free. Which of the following is most likely? A Both statements are correct. B Only Statement 1 is correct. C Only Statement 2 is correct.

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

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 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.

Gregory Robinson, CFA, works as a research analyst at a brokerage firm. His wife, Laura Robinson, CFA, is an analyst at another firm. One morning, Robinson elects to stay at home by the side of his ill wife. He receives a call from James, an investment banker, who informs him that the two largest mining companies that Robinson covers are getting taken over at a 50% premium to their current market values. This information has not been released to the public yet. Laura overhears the entire conversation and immediately purchases the stock for her clients. Standard II (A): Material Non‐Public Information has most likely been violated by: A Mr. Robinson and James. B Mr. and Mrs. Robinson. C All three of them. Answer:

Grey recommends the purchase of a mutual fund that invests solely in long- term US Treasury bonds. He makes the following statements to his clients: "The payment of the bonds is guaranteed by the US government; therefore, the default risk of the bonds is virtually zero." "If you invest in the mutual fund, you will earn a 10% rate of return each year for the next several years based on historical performance of the market." Did Grey's statements violate the CFA Institute Code and Standards? A Neither statement violated the Code and Standards. B Only statement I violated the Code and Standards. C Only statement II violated the Code and Standards.

Henry wants to borrow $100,000 to finance his business. He is offered a rate of 6% from a local bank, but is told that he would be paying an effective interest rate of 6.09%. The frequency of compounding on this loan is closest to: A Monthly. B Quarterly. C Semi‐annually

Hermann Corporation is considering an investment of €375 million with expected after-tax cash inflows of €115 million per year for seven years and an additional after-tax salvage value of €50 million in Year 7. The required rate of return is 10 percent. What is the investment's PI? A 1.19. B 1.33. C 1.56.

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.

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 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 an analyst expects a portfolio to outperform its benchmark with a 75% success rate in any measurement period, and the portfolio meets that objective in three of four quarters, what is the probability that the realized portfolio performance over the year is at or below this expectation? A 0.26 B 0.42 C 0.68

If economic data suggest that the economy is undergoing an expansion caused by an increase in aggregate demand (AD), investors should least likely increase their investments in: A Cyclical companies. B Commodity-oriented companies. C Defensive companies.

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.

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 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 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 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 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 inverted head and shoulders pattern, if the neckline is at €100, the shoulders at €90, and the head at €75, the price target is closest to which of the following? A €50. B €110. C €125.

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 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, pair- wise 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 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.

Jurgen is a portfolio manager. One of her firm's clients has told Jurgen that he will compensate her beyond the compensation provided by her firm on the basis of the capital appreciation of his portfolio each year. Jurgen should: A Turn down the additional compensation because it will result in conflicts with the interests of other clients' accounts. B Turn down the additional compensation because it will create undue pressure on her to achieve strong short-term performance. C Obtain permission from her employer prior to accepting the compensation arrangement.

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.

Martha Stevens, CFA, is an investment manager who uses her friend, Robert James, exclusively for her clients' brokerage transactions. James provides better services than other brokers in return for a slightly higher price, which Stevens believes is justified. Which of the following statements is most accurate? A Stevens is in violation of Standard III (A): Loyalty, Prudence and Care. B Stevens is in violation of Standard III (B): Fair Dealing. C Stevens has not violated any standard.

Michelieu tells a prospective client, "I may not have a long-term track record yet, but I'm sure that you'll be very pleased with my recommendations and service. In the three years that I've been in the business, my equity-oriented clients have averaged a total return of more than 26% a year." The statement is true, but Michelieu only has a few clients, and one of his clients took a large position in a penny stock (against Michelieu's advice) and realized a huge gain. This large return caused the average of all of Michelieu's clients to exceed 26% a year. Without this one investment, the average gain would have been 8% a year. Has Michelieu violated the Standards? A No, because Michelieu is not promising that he can earn a 26% return in the future. B No, because the statement is a true and accurate description of Michelieu's track record. C Yes, because the statement misrepresents Michelieu's track record.

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.

Over the past month, the Swiss Franc (CHF) has depreciated 12 percent against pound sterling (GBP). How much has the pound sterling appreciated against the Swiss Franc? A 12% B Less than 12% C More than 12%

Park is very frustrated after taking her Level II exam. While she was studying for the exam, to supplement the curriculum provided, she ordered and used study material from a third-party provider. Park believes the additional material focused her attention on specific topic areas that were not tested while ignoring other areas. She posts the following statement on the provider's discussion board: "I am very dissatisfied with your firm's CFA Program Level II material. I found the exam extremely difficult and myself unprepared for specific questions after using your product. How could your service provide such limited instructional resources on the analysis of inventories and taxes when the exam had multiple questions about them? I will not recommend your products to other candidates." A Park violated the Code and Standards by purchasing third-party review material. B Park violated the Code and Standards by providing her opinion on the difficulty of the exam. C Park violated the Code and Standards by providing specific information on topics tested on the exam.

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 predetermined 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.

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.

Raising the reserve requirement is most likely an example of which type of monetary policy? A Neutral. B Expansionary. C Contractionary.

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.

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.

Stafford is a portfolio manager for a specialized real estate mutual fund. Her firm clearly describes in the fund's prospectus its soft dollar policies. Stafford decides that entering the CFA Program will enhance her investment decision-making skill and decides to use the fund's soft dollar account to pay the registration and exam fees for the CFA Program. Which of the following statements is most likely correct? A Stafford did not violate the Code and Standards because the prospectus informed investors of the fund's soft dollar policies. B Stafford violated the Code and Standards because improving her investment skills is not a reasonable use of the soft dollar account. C Stafford violated the Code and Standards because the CFA Program does not meet the definition of research allowed to be purchased with brokerage commissions.

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.

An investment of $100 generates after-tax cash flows of $40 in Year 1, $80 in Year 2, and $120 in Year 3. The required rate of return is 20 percent. The net present value is closest to: A $42.22. B $58.33. C $68.52.

An investment of $150,000 is expected to generate an after-tax cash flow of $100,000 in one year and another $120,000 in two years. The cost of capital is 10 percent. What is the internal rate of return? A 28.39 percent. B 28.59 percent. C 28.79 percent.

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