cfa wrong am 1

https://imgur.com/a/KDexiZ4

A https://imgur.com/a/Q4VcPWn

https://imgur.com/a/ZBa9aD6

B https://imgur.com/a/XrJP48r

Wouter Duyck, CFA, is the sole proprietor of an investment advisory firm serving several hundred middle class retail clients. Duyck claims to be different from his competitors because he conducts research himself. He discloses that to simplify the management of all these accounts he has created a recommended list of stocks, from which he selects investments for all of his clients based on their suitability. Duyck's recommended list of stocks is obtained from his primary broker, who has completed due diligence on each stock. Duyck's recommended list least likely violates which of the following CFA Institute Standards of Professional Conduct? Fair Dealing. Misrepresentation. Diligence and Reasonable Basis.

A is correct because Standard III(B)-Fair Dealing concerns the fair treatment of clients when making investment recommendations or taking investment action, but there is no indication that the advisor has discriminated against any clients with regard to his recommendations as he invests all clients in the same universe of stocks. The advisor has violated Standard I(C)-Misrepresentation with his research, which is not independently created and instead relies upon information provided by his broker. This is contrary to the advisor telling clients he does his own independent investment research. In addition, the advisor has violated Standard V(A)-Diligence and Reasonable Basis, as he has not made reasonable and diligent efforts to determine if the third party's research is sound. B is incorrect, as the advisor has violated Standard I(C)-Misrepresentation with his research, which is not independently created and instead relies upon information provided by his broker. C is incorrect, as the advisor has violated Standard V(A)-Diligence and Reasonable Basis as he does not have a reasonable basis for making his investment recommendations and relies solely on his broker's research to create his list of stock investments. This is directly contrary to telling clients that he does his own independent investment research.

Which of the following tests should be used to evaluate the difference between the means of two normally distributed populations? An approximate t-test if the population variances are unknown and assumed unequal and the samples are assumed to be independent. An approximate t-test that involves the calculation of a pooled estimator of the population variances which are assumed unequal. A paired comparison test if the two samples are independent and the population variances are unknown.

A is correct. An approximate t-test is used to test the differences between means of two populations when the unknown population variances cannot be assumed to be equal. B is incorrect because a pooled estimator is used when the two population variances are assumed to be equal. C is incorrect because a paired comparison test is used to test mean differences when the samples are assumed to be dependent.

John Smith is given two investment options. Option A is a payment with a 50% chance of getting $100 and a 50% chance of getting $0. Option B is a guaranteed payment of $50. If Smith chooses Option A over Option B, his risk preference is best described as risk: seeking. averse. neutral.

A is correct. Both options have the same expected return of $50. Option A, however, has a higher risk (standard deviation) than Option B. Therefore, John Smith's risk preference is that of risk seeking.

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

A is correct. Credit tranching allows investors to choose between subordinate and senior bond classes as a means of credit enhancement. The purpose of this structure is to redistribute the credit risk associated with the collateral. B is incorrect because extension and contraction risks refer to the types of prepayment risks in a securitization structure. C is incorrect because partially and fully amortizing loans refer to two ways in which the loan principal can be repaid.

In order to provide investors with a more comprehensive view of a firm's performance, the current GIPS standards includes new provisions related to: various measures of risk. all aspects of performance measurement. the unique characteristics of each asset class

A is correct. Historically, the GIPS standards focused primarily on returns. In the spirit of fair representation and full disclosure, and in order to provide investors with a more comprehensive view of a firm's performance, the current GIPS standards includes new provisions related to risk. B is incorrect, the GIPS standards do not address all aspects of performance measurement. C is incorrect, the GIPS standards do no cover the unique characteristics of each asset class.

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

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

Which of the following is most likely one of the main functions of the financial system? Determining an equilibrium interest rate Ensuring that markets are informationally efficient Ensuring that all investment projects receive sufficient funding

A is correct. One of the main functions of the financial system is to determine the equilibrium interest rate, which is the only interest rate that would exist if all securities were equally risky, had equal terms, and were equally liquid. B is incorrect. Informational market efficiency is not a key function of the financial system, rather that of regulatory framework C is incorrect. The financial system provides sufficient funding only to the most productive projects. An important function of the financial system is to direct resources away from wealth-diminishing projects.

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

A is correct. The debt-rating approach is an example of matrix pricing. B is incorrect because the yield-to-maturity approach is not an example of matrix pricing. C is incorrect because the yield-to-maturity approach is not an example of matrix pricing.

An inverse floater will most likely have: a maximum coupon rate. a face value that changes as the reference rate changes. a coupon rate that changes by more than the change in the reference rate.

A is correct. The general formula for the coupon rate of an inverse floater is C - (L × R), where Cis the maximum coupon rate if the reference rate (R) is equal to zero and L is the coupon leverage, which is greater than zero.

Assuming its trading partner does not retaliate, which of the following conditions must hold in order for a large country to increase its national welfare by imposing a tariff? The deadweight loss must be smaller than the benefit of its improving terms of trade. It must auction the import licenses for a fee to offset the decline in the consumer surplus. It must have a comparative advantage in the production of the imported good.

A is correct. The large country is able to cause the foreign exporter to reduce price in order to retain market share. In the large country, domestic producers gain from higher volume and the government gains from collecting the tariff. The sum of these two gains must exceed the deadweight loss to domestic consumers to achieve a national welfare gain. The change in terms of trade causes income redistribution from the foreign exporter to the domestic producer. B is incorrect. An import license relates to a quota, not a tariff. C is incorrect. If the large country had a comparative advantage, it would be exporting more than importing. This is not relevant to whether there is a net domestic gain from the tariff. The tariff hurts domestic consumers. Unless the gain from the tariff exceeds the loss to consumers, national welfare will decrease.

A hedge fund with $98 million of initial capital charges a management fee of 2% and an incentive fee of 20%. The management fee is based on assets under management at year end and the incentive fee is calculated independently from the management fee. The fee structure has a high-water mark provision. The fund value is $112 million at the end of Year 1, $100 million at the end of Year, and $116 million at the end of Year 3. The net-of-fees return earned by the fund in Year 3 is closest to: 14.15%. 12.33%. 11.87%.

A is correct. The net-of-fees return to the fund in Year 3 is closest to 14.15%, calculated as follows: Year 1: Portfolio gain = Year-end value - Beginning value = $112 million − $98 million = $14 million Management fee = Year-end value × Management fee % = $112 million × 2% = $2.24 million Incentive fee = Portfolio gain × Incentive fee % = $14 million × 20% = $2.8 million Total fees = Management fee + Incentive fee = $2.24 million + $2.8 million = $5.04 million Ending Capital Position = Year-end value - Total fees = $112 million − $5.04 million = $106.96 million High water mark = Ending capital position = $106.96 million Year 2: No incentive fee is earned as the fund declines in value; the high water mark established in Year 1 is not exceeded. Management fee = Year-end value × Management fee % = $100 million × 2% = $2 million Ending Capital Position = Year-end value - Management fee = $100 million − $2 million = $98 million High water mark = Highest ending capital position = $106.96 million Year 3: Net-of-fee returns are affected by the Year 1 high water mark and the Year 2 net capital position (i.e. Year 3 beginning capital position). Management fee = Year-end value × Management fee % = $116 million × 2% = $2.32 million Incentive fee = (Year-end value - High water mark) × Incentive fee % = ($116 million - $106.96 million) × 20% = $1.81 million. Total fees = Management fee + Incentive fee = $2.32 million + $1.81 million = $4.13 million Net-of-fees return = (Year-end value - Total fees - Beginning capital position)/Beginning capital position = ($116 million - $4.13 million - $98 million)/$98 million = 14.15%.

Which of the following is least likely to be of concern to values-based ESG investors? Avoidance of companies that conflict with moral values Reduction in risks associated with increased litigation costs Increase in risk-adjusted returns through ESG factor ranking

A is correct. The objective of a values-based ESG approach is to mitigate risks and identify opportunities by analyzing ESG considerations in addition to traditional finance metrics. Avoidance of companies that conflict with moral or ethical values reflects a values-based approach. B and C are incorrect. The objective of a values-based ESG approach is to mitigate risks and identify opportunities by analyzing ESG considerations in addition to traditional finance metrics.

Based on good corporate governance practices, it is most appropriate for a company's compensation committee to: develop director remuneration policies. recommend remuneration for the external auditors. include some external directors.

A is correct. Under good corporate governance practices the compensation committee develops remuneration policies for directors as well as key executives. The audit committee, not the compensation committee, would be involved in the remuneration of the external auditors. C is incorrect. The committee should be composed of independent (non-executive) members only. B is incorrect. The audit committee is responsible for proposing the external auditor's remuneration.

n a credit default swap, the party that receives a series of cash payments in return for promising to pay compensation for credit losses resulting from a third party's default is most likely the: clearinghouse. seller of the swap. buyer of the swap.

B is correct. A credit default swap is a derivatives contract between a credit protection buyer and a credit protection seller in which the seller receives a series of cash payments from the buyer in return for a promise of compensation for credit losses resulting from a third party's default. A is incorrect. A credit default swap is a derivatives contract between a credit protection buyer and a credit protection seller in which the seller (not the clearinghouse) receives a series of cash payments from the buyer in return for a promise of compensation for credit losses resulting from a third party's default. C is incorrect. A credit default swap is a derivatives contract between a credit protection buyer and a credit protection seller in which the seller (not the buyer) receives a series of cash payments from the buyer in return for a promise of compensation for credit losses resulting from a third party's default.

Ted Nguyen is an investor domiciled in a country with an original issue discount tax provision. He purchases a zero-coupon bond at a deep discount to par value with the intention of holding the bond until maturity. At maturity, he will most likely face: a capital gain. neither a capital loss nor gain. a capital loss.

B is correct. An original issue discount tax provision allows the investor to increase the cost basis of the bond, so when the bond matures, the investor faces no capital gain or loss.

If the level of broad inflation indexes is largely determined by commodity prices, the average real yield on direct commodity investments is most likely: less than zero. equal to zero. greater than zero.

B is correct. As the price increases of commodities are mirrored in higher price indexes, the nominal return is equal to inflation and thus the real return is zero. A is incorrect. A negative real return implies inflation greater than nominal return. This is not the case if commodity price increases determine inflation. C is incorrect. A positive real return implies inflation less than nominal return. This is not the case if commodity price increases determine inflation.

A central bank announcement of a program to raise rates to moderate inflation will most likelylead to: a weaker domestic currency. revised interest rate expectations. higher asset prices.

B is correct. Companies and individuals often make investment and purchasing decisions based on interest rate expectations extrapolated from recent events. As the economic actors perceive that a central bank will be implementing rate increases, they will anticipate rising rates and adjust their behavior accordingly. These revised higher interest rate expectations will typically lead to a stronger domestic currency and declines in consumption, asset prices, and borrowing. These outcomes are consistent with a policy action to moderate inflation. A is incorrect because raising central bank rates to moderate inflation typically leads to a stronger (rather than a weaker) domestic currency. The strengthening domestic currency makes domestic exports more expensive to foreign buyers thereby dampening demand, an outcome that is consistent with the objective of moderating inflation. C is incorrect because raising central bank rates to moderate inflation typically leads to declining asset prices as the discount rate rises. Declining asset prices lead market participants to a view that higher interest rates result in slower economic growth, reduced profits, and reduced borrowing to finance asset purchases. Reduced consumer demand from the wealth effect of declining asset prices also tempers consumption and inflationary pressures.

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

B is correct. Renegotiating debt contracts is a secondary source of liquidity because it may affect the company's operating and/or financial positions. A is incorrect. Increasing cash flow management efficiency is a primary source of liquidity. C is incorrect. Increasing bank lines of credit is a primary source of liquidity.

An income statement in a single-step format presents a subtotal for: amortization of intangibles. operating income. gross margin.

B is correct. Single-step income statements present a subtotal for operating income. A is incorrect because income statements in single-step format do not present a subtotal for amortization of intangibles. C is incorrect because income statements in single-step format do not present a subtotal for gross margin. When an income statement shows a gross profit subtotal, it is said to use a multi-step format rather than a single-step format.

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

B is correct. Support of product development and/or marketing efforts takes place during seed-stage financing.

Returns from a depository receipt are least likely affected by which of the following factors? Exchange rate movements Number of depository receipts Analysts' recommendations

B is correct. The price of each depository receipt (and, in turn, returns) will be affected by factors that affect the price of the underlying shares—such as company fundamentals, market conditions, analysts' recommendations, and exchange rate movements. The number of depository receipts issued affects their price but does not affect the returns. A is incorrect. The price of each depository receipt (and, in turn, returns) will be affected by such factors as company fundamentals, market conditions, analysts' recommendations, and exchange rate movements. C is incorrect. The price of each depository receipt (and, in turn, returns) will be affected by such factors as company fundamentals, market conditions, analysts' recommendations, and exchange rate movements.

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

B is correct. The structural deficit is the deficit that would exist if the economy was at full employment (or full potential output). Economists often consider the structural deficit as an indicator of the fiscal policy stance. A is incorrect because the structural deficit makes no adjustment for inflation. C is incorrect because the structural deficit includes (rather than excludes) the impact of automatic stabilizers on the budget assuming full employment.

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

B is correct. Under IFRS, debt issuance costs are included in the measurement of the bond liability. A is incorrect. Under both US GAAP and IFRS, they are not expensed. C is incorrect. This is US GAAP.

A company has issued non-callable, non-convertible preferred stock with the following features: Par value per share: $10 Annual dividend per share: $2 Maturity: 15 years An investor's required rate of return is 8%, and the current market price per share of the preferred stock is $25. By comparing the estimated intrinsic value with the market price of the preferred stock, the most likely conclusion is that the preferred stock is: fairly valued at $25.00. overvalued by $4.73. undervalued by $15.00.

B is correct. Using a financial calculator to find the present value (PV) of the future cash flows, intrinsic value is thus: FV = $10; n = 15; PMT = $2; r = 8%. Compute PV = $20.27. The preferred stock is overvalued by $4.73 (Market price of $25 - Estimated value of $20.27

Under International Financial Reporting Standards (IFRS), which of the following is most likelyone of the general features underlying the preparation of financial statements? Understandability Timeliness Consistency

C is correct. Consistency is one of the general features underlying the preparation of financial statements based on IFRS. A is incorrect. Understandability is one of the qualitative characteristics of financial statements under IFRS framework for the preparation and presentation of financial statements. It is not a general feature. B is incorrect. Timeliness is one of the qualitative characteristics of financial statements under IFRS framework for the preparation and presentation of financial statements. It is not a general feature.

Based on the elasticities approach, a country can implement an exchange rate policy to improve its trade balance most effectively if it imports and exports products: that are consumer necessities. with no good substitute. traded in competitive markets.

C is correct. In the elasticities approach, changes in exchange rate policy will be a more-effective mechanism for trade balance adjustment if a country imports and exports products that trade in competitive markets, with good substitutes, and luxury products rather than necessities. A is incorrect. In the elasticities approach, changes in exchange rate policy will be a more-effective mechanism for trade balance adjustment if a country imports and exports products that trade in competitive markets, with good substitutes, and luxury products rather than necessities. B is incorrect. In the elasticities approach, changes in exchange rate policy will be a more-effective mechanism for trade balance adjustment if a country imports and exports products that trade in competitive markets, with good substitutes, and luxury products rather than necessities.

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

C is correct. Risk management is the process by which an organization or individual defines the level of risk to be taken, measures the level of risk being taken, and adjusts the latter toward the former, with the goal of maximizing the company's or portfolio's value or the individual's overall satisfaction or utility.

Joanne Bryce recently received notification she had successfully completed the Level III CFA exam. Having met all the necessary requirements, Bryce would soon be awarded her charter. Bryce's employer wanted to recognize her accomplishment and placed an ad in the local newspaper. Which of the following statements would least likely comply with the CFA Institute Standards of Professional Conduct? The CFA charter is a key asset in the development of her investment career. By becoming a charterholder, she has significantly improved her standing within the firm. Ms. Bryce passed all three levels of the exam consecutively, placing her in an elite group.

C is correct. The ad should not include the statement, "Ms. Bryce passed all three levels of the exam consecutively, placing her in an elite group." CFA Standard VII(B): References to CFA Institute, the CFA Designation, and the CFA Programs states, "When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program." CFA charterholders are those individuals who have earned the right to use the CFA designation granted by CFA Institute. These individuals have satisfied certain requirements, including completion of the CFA Program and the required years of acceptable work experience. It would not have been a violation to simply state that Ms. Bryce had consecutively passed all three levels of the exam; it would simply be a statement of fact. Adding that it places her in an elite group is an exaggeration of her accomplishment and could be viewed as misleading. A and B are incorrect. The statements "The CFA charter is a key asset in the development of her investment career" and "By becoming a charterholder, she has significantly improved her standing within the firm" can be included in the ad. The charter can be considered a key asset, and that it has significantly improved her standing within the firm simply indicates that her firm holds the charter in high regard. Neither statement misrepresents nor exaggerates the meaning or implication of holding the CFA designation.

An industry experiencing intense competitive rivalry among incumbent companies is bestcharacterized by: differentiated products and low exit barriers. a small number of competitors and low fixed costs. customers basing purchase decisions largely on price.

C is correct. The factor that most influences customer purchase decisions is likely to also be the focus of competitive rivalry in the industry. In general, industries in which price is a large factor in customer purchase decisions tend to be more competitive than industries in which customers value other attributes more highly. A is incorrect. Industries experiencing more intense rivalry among incumbent companies are characterized by undifferentiated products and high exit barriers. B is incorrect. Industries experiencing more intense rivalry among incumbent companies are fragmented among many small competitors and they tend to have high fixed costs.

DMT Corp. issued a five-year floating-rate note (FRN) that pays a quarterly coupon of three-month Libor plus 125 bps. The FRN is priced at 96 per 100 of par value. Assuming a 30/360-day count convention, evenly spaced periods, and constant three-month Libor of 5%, the discount margin for the FRN is closest to: 180 bps. 400 bps. 221 bps.

C is correct. The interest payment each period per 100 of par value is (Index+QM)×FVm=(0.05+0.0125)×1004=1.5625 The discount margin can be estimated by solving for DM in the equation 96=1.5625(1+0.05+DM4)1+1.5625(1+0.05+DM4)2+⋯+1.5625(1+0.05+DM4)20 The solution for the discount rate, r = (0.05 + DM)/4 is 1.8025%. Therefore, DM = 2.21% or 221 bps. First calculate the quarterly coupon payment as above which will give you 1.5625. Then you can use your calculator to find the YTM for the FRN N=20 PV=-96 PMT=1.5625 FV=100 This will give you a YTM of 1.8025. As this is based on quarterly periods multiply by 4 to give 7.21%. The discount margin is the yield over and above LIBOR that is being given so 7.21%-5% = 2.21% or 221bps which is the answer you are looking for.

An exchange rate between two currencies has decreased to 1.3500. If the base currency has depreciated by 7% against the price currency, the initial exchange rate between the two currencies was closest to: 1.2617. 1.4445. 1.4516.

C is correct. To calculate the initial exchange rate, the current exchange rate is divided by 1 minus the percentage depreciation in the exchange rate of the base currency: 1.3500 ÷ (1 - 0.07) = 1.3500 ÷ 0.93 = 1.4516. A is incorrect. The calculation incorrectly divides the current exchange rate by 1 plus the percentage depreciation in the exchange rate: 1.3500 ÷ 1.07 = 1.2617. B is incorrect. The calculation incorrectly multiplies the current exchange rate by 1 plus the percentage depreciation in the exchange rate: 1.3500 × 1.07 = 1.4445.

When a security that was in an upward trend falls 1% below its trendline, a technical analyst will most likely determine that: a downward trend is beginning. the upward trend is ending. the trendline needs an adjustment.

C is correct. When a security's price drops through the trendline by a significant amount (at least 5% to 10%), this decline signals that the uptrend has ended and further decline may follow. Minor breakthroughs simply call for the trendline to be moderately adjusted over time. A security falling 1% below its trendline is considered a minor breakthrough.

Selected information is taken from the GDP data of a hypothetical country:Account NameAmount ($ trillions) GDP18.0 Wages, salaries, and other labor income9.0 Taxes3.5 Capital consumption allowance2.3 Undistributed corporate profits1.0 Transfer payments1.9 Personal income (in $ trillions) for this country is closest to: 10.9. 15.4. 17.7.

Personal income = National income - Taxes - Undistributed corporate profits + Transfer payments, where National income = GDP + Capital consumption allowance = 18 + 2.3 = 20.3 Personal income = 20.3 - 3.5 - 1.0 + 1.9 = 17.7 A is incorrect. It is only cash flows to households through wages, salaries, and other labor income plus transfer payments = 9.0 + 1.9 = 10.9. B is incorrect. It ignores capital consumption allowance in determining national income. National income is incorrectly calculated as National income = GDP + Capital consumption allowance = 18 + 0 = 18, with Personal income = National income - Taxes - Undistributed corporate profits + Transfer payments = 18.0 - 3.5 - 1.0 + 1.9 = 15.4.

Sherry Buckner, CFA, manages equity accounts for government entities whose portfolios are classified as being conservative and risk averse. Since the objective of her clients is to maximize returns with the lowest possible risk, Buckner considers adding to their holdings a new, thinly traded, leveraged derivative product that she believes has the potential for high returns. To make her investment decision, Buckner relies upon comprehensive research from an investment bank with a solid reputation for top quality research. After her review of that research, Buckner positions her accounts so each has a 10% allocation to the derivative product. Did Buckner most likelyviolate any CFA Institute Standards of Professional Conduct by purchasing the derivative product for her clients? No.a Yes, related to Suitability.b Yes, related to Loyalty, Prudence, and Care.c

b B is correct as Buckner is in violation of Standard III(C) since she did not consider issues such as the limited liquidity or any potential leverage of this new product when she invested a substantial percentage of her clients' portfolios in these instruments. A is incorrect because Buckner violated the suitability Standard. C is incorrect because Buckner relied upon comprehensive research from the investment bank.

For a retail client's portfolio to be included in a GIPS compliant firm's composite, it will most likelybe in a composite: composed of discretionary funds. restricted to retail funds. with both fee-paying and non-fee-paying funds.

composed of discretionary funds. A is correct. A composite must include all actual, fee-paying, discretionary portfolios managed in accordance with the same investment mandate, objective, or strategy.