Question #1 of 180 Question ID: 1617092

Berg AB, a Swedish company, had at the end of the last accounting period DTLs of SEK
30 million and DTAs of SEK 12 million. During the current period, the authorities
raised the tax rate from 30% to 35%. The impact on Berg's tax expense due to the
adjustment of existing DTAs and DTLs at the time of the change will:

A) increase tax expense.

B) decrease tax expense.
C) have no impact on tax expense.

Question #2 of 180 Question ID: 1617100

Which of the following would most likely lead to a company having little pricing
power?

A) High fixed costs and high exit barriers.

B) Many suppliers and low switching costs for production inputs.
C) Small number of customers in the market and high switching costs for the product.

Question #3 of 180 Question ID: 1617189

A member is hired to write a research report on a company that is paid for by the
company with a flat fee and fixed bonus if the firm's shares become more widely held.
The member is:

not in violation of the Standards as long as the fact that the research is issuer-
A)
funded is disclosed.
not in violation of the Standards as long as both the source of the funding and the
B)
nature of the compensation is disclosed.
in violation of the Standards even if both the funding source and the nature of the
C)
compensation are disclosed.
Question #4 of 180 Question ID: 1617056

Geopolitical risks are characterized as "black swan" risks if they have a:

A) high likelihood and high impact.

B) low likelihood and high impact.
C) high likelihood and low impact.

Question #5 of 180 Question ID: 1617066

An investor receives $500 in cash dividends from his investment in a company's

common stock. The investor is taxed at 24% rate. If the corporation is also taxed on its
earnings, the effective tax rate on the dividends is:

A) equal to 24% because the investor owes taxes on dividends received.

B) greater than 24% because dividends are paid from taxed corporate earnings.
C) less than 24% because the corporation can deduct dividends paid as an expense.

Question #6 of 180 Question ID: 1617190

Joey Balder, CFA, an employee of Flagship Investment Managers, is offered a position

as Flagship's Southtown branch supervisor. Balder is reluctant to accept the position
because certain compliance procedures have not been adopted in that branch. To
comply with the Standards, Balder should most appropriately:

A) accept the position on condition that his concerns will be addressed.

decline in writing to accept the supervisory position until the firm adopts
B)
appropriate procedures.
discuss his concerns with management and not accept the position unless and until
C)
he is given authority over compliance procedures.

Question #7 of 180 Question ID: 1617068

An investor would like to limit his exposure to adverse events associated with
environmental, social, and governance risks. Which of the following investments in a
company's securities is best suited for this purpose?

A) Equity.
B) Long-term debt.
C) Short-term debt.

Question #8 of 180 Question ID: 1617099

Forecasting future earnings of a company based on whether it changes its main

supplier is best described as an example of:

A) simulation.
B) scenario analysis.
C) sensitivity analysis.

Question #9 of 180 Question ID: 1617191

One week after taking the Level II CFA exam, Mindy Hauser posts a message on a
popular Web site: "I do not believe CFA Institute tested the curriculum fairly. I was
ready to use the trick I learned for triangular arbitrage problems, and there weren't
any on the exam." Does Hauser's message violate the Standards related to conduct as
a CFA candidate?

A) No, because expressing an opinion is not a violation.

B) Yes, because it compromises the reputation of the CFA Institute.
C) Yes, because it compromises the integrity of the CFA examinations.

Question #10 of 180 Question ID: 1617076

A company's pretax cost of debt is 7% and its cost of equity is 9%. With a 20% tax rate
and a capital structure that has twice as much debt as equity, the company's
weighted-average cost of capital is closest to:
A) 6.7%.
B) 7.7%.
C) 7.9%.

Question #11 of 180 Question ID: 1617069

Which of the following actions by a company's management or board of directors is

most likely to represent a principal-agent conflict?

A) Implementing a dual-class voting structure for common shares.

B) Increasing the size of the company with an unnecessary acquisition.
C) Issuing new debt while increasing dividends to common shareholders.

Question #12 of 180 Question ID: 1617057

A country implementing a tariff on imports is most likely to have a negative economic

effect on:

A) foreign exporters.
B) domestic producers.
C) the domestic government.

Question #13 of 180 Question ID: 1617192

Which of the following statements regarding record retention is most accurate?

A) The Standards require that records be retained for a minimum of seven years.
While members are responsible for retaining research notes and other supporting
B)
documents, record retention is generally the responsibility of the firm.
When a member changes employers, the member is responsible for transferring the
C)
records supporting his recommendations to his new employer.
Question #14 of 180 Question ID: 1617043

To estimate the standard error of the sample mean using jackknife resampling, an
analyst should remove how many of the observations from each sample?

A) One.
B) Two.
C) None.

Question #15 of 180 Question ID: 1617185

If the CFA Institute Professional Conduct Program staff determine through

investigation that a violation of the Code and Standards has occurred and proposes
sanctions on a member, and the member rejects these sanctions:

A) CFA Institute membership is terminated.

B) the matter is referred to a hearing by a panel of members.
CFA Institute membership is suspended until sanctions are accepted or complied
C)
with.

Question #16 of 180 Question ID: 1617054

After years of rapid economic growth, a country's central bank is concerned about
increasing inflation. Which of the following monetary policy actions is the central bank
most likely to take?

A) Decrease its target for the policy rate.

B) Increase the required reserve ratio for banks.
C) Purchase government securities in the open market.

Question #17 of 180 Question ID: 1617088

Master Machines bought a customer list from a competitor leaving the market. The
list has an estimated economic life of five years and no residual value, and it is
recorded as an intangible asset. A year later, industry changes lead Master to reduce
the list's remaining useful life to two years. This change in the useful life will most
likely result in:

a decrease in net income in the next year and restatement of historical financial
A)
statements.
higher amortization expense in the next year but no restatement of historical
B)
financial statements.
a restatement of historical financial statements to reflect the change but no change
C)
in net income for the next year.

Question #18 of 180 Question ID: 1617074

Wyche Company has asked Keenan Company to participate in a capital investment

project as a joint venture. After one year, Keenan will have a one-time right either to
turn the project over to Wyche or to remain a partner for the duration of the project.
Keenan should evaluate this project as having a(n):

A) timing option.
B) fundamental option.
C) abandonment option.

Question #19 of 180 Question ID: 1617193

Paula Flint, CFA, has left Global Management to start her own investment
management firm. Global uses cash flow return on investment (CFROI) as their
primary metric for stock selection and has been a pioneer in this approach with great
success. While at Global, Flint wrote a stock screening program that was a significant
improvement in identifying companies that could be suitable investments under the
CFROI strategy. Flint did not sign a non-compete agreement with Global and did not
request permission to use any property of Global after leaving the firm.

After leaving the firm, Flint:

solicited her former clients and told them that she would be using the same
strategy as Global in her stock selection at the new firm.
used the knowledge she acquired while at Global to select high CFROI stocks
that also fit other criteria correlated with subsequent outperformance.
used a copy of the screening program she wrote while at Global at her new firm.

Did any of these actions violate the Standards?

A) None of these actions violated the Standards.

B) Only one of these actions violated the Standards.
C) More than one of these actions violated the Standards.

Question #20 of 180 Question ID: 1617036

The following set of data represents a sample from a normally distributed population
of prices of jeans at a large retailer: $28, $36, $32, $30, $34, $32. Which of the
following statements about this sample is least accurate?

A) The range equals $8.

B) The median equals $31.
C) The mean absolute deviation equals 2.

Question #21 of 180 Question ID: 1617090

For a long-term lease of significant value in which some of the risks or benefits of
ownership remain with the lessor, the lessee will report a right-to-use asset and a
lease liability in an equal amount on the balance sheet under:
A) IFRS only.
B) U.S. GAAP only.
C) both IFRS and U.S. GAAP.

Question #22 of 180 Question ID: 1617186

The CFA Institute Standards of Professional Conduct are most likely to include:

A) Integrity of the Investment Profession.

B) Maintaining and Improving Professional Competence.
C) Investment Analysis, Recommendations, and Actions.

Question #23 of 180 Question ID: 1617058

The exchange rate yesterday between the U.S. dollar (USD) and Canadian dollar (CAD)
was 0.85 USD/CAD. Today, the exchange rate closed at 0.89 USD/CAD. The U.S. dollar
has:

A) appreciated by 4.7%.
B) depreciated by 4.7%.
C) depreciated by 4.5%.

Question #24 of 180 Question ID: 1617075

Which of the following principles should an analyst most appropriately apply when
evaluating a project?

A) Incorporate the tax shield from depreciation.

B) Assign a greater present value to more distant cash flows.
C) Consider return on equity as a key component of the decision process.
Question #25 of 180 Question ID: 1617194

Alvin Mell, CFA, is an investment advisor whose clients include Jack Allen, a famous
professional athlete. Allen permits Mell to tell prospective clients that he is one of
Mell's clients. In a meeting with a new prospect, Mell truthfully states, "I was able to
earn a 15% return for Jack Allen last year." Mell has least likely violated the Standard
concerning:

A) performance presentation.
B) misrepresentation.
C) preservation of confidentiality.

Question #26 of 180 Question ID: 1617045

An analyst wants to test the hypothesis that the mean monthly returns are equal on
the stocks of two major oil companies, over the last 60 months, assuming that the
returns are approximately normal and that the variance of monthly returns is equal
for the two stocks. He would most appropriately calculate a test statistic using:

the difference between the mean monthly returns of the two stocks and the pooled
A)
variance of the returns on the two stocks.
the average of the differences between the monthly returns on the two stocks and
B)
the standard deviation of the differences.
the difference between the mean monthly returns of the two stocks and the
C)
individual variances of returns for the two stocks.

Question #27 of 180 Question ID: 1617195

With respect to members and candidates who are involved in distributing shares in
oversubscribed initial public offerings (IPOs), the Code and Standards:

A) require that these members and candidates not accept shares.

B) recommend that these members and candidates not accept shares.
only permit these members and candidates to accept shares if the firm has
C)
disclosed its allocation policies to clients.
Question #28 of 180 Question ID: 1617196

Samantha Sever, CFA, manages the pension fund for Polar Pipelines, Inc. Sever was
hired by the chief executive officer of Polar at the direction of Polar's board of
directors. Sever's client, to which she owes the duty of loyalty, is:

A) the Polar board of directors.

B) the chief executive officer of Polar.
C) the beneficiaries of the pension fund.

Question #29 of 180 Question ID: 1617086

Compared to using the LIFO method, during periods of rising prices, a company that
uses the FIFO method will most likely have a higher:

A) inventory turnover ratio.

B) total asset turnover ratio.
C) interest coverage ratio.

Question #30 of 180 Question ID: 1617070

A company is most likely experiencing financial distress if it:

A) seeks secured loans.

B) relies on a revolving line of credit.
C) uses secondary sources of liquidity.

Question #31 of 180 Question ID: 1617197

For a portfolio manager to accept a bonus from a client, such as a free vacation, if her
performance is good in a future period, is:

a violation of the Standards if the bonus is from a client and not a third-party
A)
vendor.
B) a violation of the Standards unless the manager gets consent from her employer.
not a violation of the Standards as long as the manager informs her employer that
C)
she intends to accept the bonus.

Question #32 of 180 Question ID: 1617139

An investor adds an actively traded AAA rated, 10-year corporate bond to her
investment portfolio. Which of the following components of the bond's yield is most
likely to be the largest?

A) Default risk premium.

B) Liquidity risk premium.
C) Maturity risk premium.

Question #33 of 180 Question ID: 1617095

A firm buys a new machine that has a 5-year life. This new machine will be used
heavily in the first two years of its service, and then its output is expected to decline
significantly each year thereafter. If management wants to maximize the firm's
reported net profit margin for the first year of the machine's life, the depreciation
method they are most likely to use is:

A) straight-line.
B) units of production.
C) double-declining balance.

Question #34 of 180 Question ID: 1617082

Carolina Company has employee stock options outstanding for 100,000 shares that
will be exercisable by the option holders in two years. The exercise price is $40 per
share. The market price of Carolina shares was $42 on December 31 and averaged
$38 during the year. When calculating its diluted earnings per share, Carolina should
most likely:
A) not include the options because they are antidilutive.
B) not include the options because they cannot be exercised yet.
C) include the options because they are potentially dilutive securities.

Question #35 of 180 Question ID: 1617198

A member's investment actions in managing a client account are least likely to have a
reasonable and adequate basis if they are based on:

A) the opinion of a nationally respected investment analyst.

B) a report by the firm’s research department.
C) quantitatively oriented technical analysis designed to rank securities.

Question #36 of 180 Question ID: 1617199

Bill Jackson, CFA, has established his own investment management firm. Jackson uses
cost-benefit analysis to determine whether to vote proxies, and he informs his clients
and prospects of this policy. Is Jackson in compliance with the Code and Standards?

A) Yes.
B) No, because he must also disclose the details of his cost-benefit analysis.
No, because he has violated his duty of loyalty to clients by failing to vote some
C)
proxies.

Question #37 of 180 Question ID: 1617091

For a finance lease, on the lessee's balance sheet, the right-of-use asset and the lease
liability have equal values:

A) only at the end of the lease.

B) throughout the life of the lease.
C) only at the beginning and the end of the lease.
Question #38 of 180 Question ID: 1617200

Victor Baltz, CFA, manages the investment account of Martha Stallings, a widow who
lives off her investment accounts and is relatively risk averse. One of the securities in
her account has a beta of 1.5 and he has also sold call options on these shares. With
respect to these actions, Baltz has:

A) violated the Standards, both by buying the high-beta stock and by selling the calls.
violated the Standards by selling the options but not by purchasing the high-beta
B)
stock.
not necessarily violated the Standards because it is the risk of the entire portfolio
C)
that is relevant in judging suitability.

Question #39 of 180 Question ID: 1617046

An analyst is examining inflation and changes in gold prices to determine if there is a

significant linear relationship between the two. For a sample of 150 observations the
correlation between the two variables is 0.1452. The critical values for the test statistic
are ±1.65 at the 10% significance level and ±1.96 at the 5% significance level. For the
null hypothesis that there is no correlation between the two variables, the analyst
should:

A) reject the null hypothesis at the 5% significance level.

B) fail to reject the null hypothesis at the 10% significance level.
reject the null hypothesis at the 10% significance level, but not at the 5% significance
C)
level.

Question #40 of 180 Question ID: 1617083

For a bond purchased by a company that intends to hold the bond to maturity,
unrealized gains and losses in the bond's value prior to maturity are most likely
recognized:

A) on the income statement.

B) as a component of other comprehensive income.
C) neither on the income statement nor in other comprehensive income.
Question #41 of 180 Question ID: 1617067

Taking a private company public in the United States and at the same time raising
capital for company growth would be best achieved through:

A) an IPO.
B) a SPAC.
C) a direct listing.

Question #42 of 180 Question ID: 1617201

Joanna Burgess, CFA, sends all of her investor clients a report which highlights
industries the firm's research department believes will outperform over the next year.
She also includes her firm's recommended list, which contains only the names of the
20 domestic stocks on which the firm has a buy recommendation. With respect to
these actions, Burgess has:

A) not violated the Standards of Practice.

violated the Standards by not considering suitability for her clients who received the
B)
list.
violated the Standards by not indicating the basic investment characteristics of the
C)
recommended stocks.

Question #43 of 180 Question ID: 1617097

Jennifer Jones, CFA, has calculated the following 20X7 financial ratios for two home
improvement retailers that she is considering including in an investment portfolio:

HomeSpace Mowers

Fixed asset turnover 2.8 2.0

Inventory turnover 5.0 4.5

Current ratio 1.3 1.4

Quick ratio 0.28 0.30

Debt-to-equity ratio 46.6% 28.1%

Interest coverage ratio 24.7 33.5

Net profit margin 6.3% 6.6%

Return on equity 17.4% 13.8%

Return on assets 11.9% 10.8%

Based on this information, Jones should most likely conclude that Mowers:

A) carries less inventory than HomeSpace.

B) has less total debt outstanding than HomeSpace.
C) uses its assets less efficiently than HomeSpace.

Question #44 of 180 Question ID: 1617202

A member or candidate who acquires non-material non-public information during the

course of her work would most likely violate the Standards, with respect to this
information, by:

A) telling her husband.

B) sharing it with her investment club.
C) incorporating it in a research report.

Question #45 of 180 Question ID: 1617187

Which of the following is most likely required of members and candidates by the CFA
Institute Code of Ethics?

A) Encourage others to practice in a professional manner.

B) Judge the suitability of investments in the context of a client’s overall portfolio.
Disclose to clients and prospects the basic principles of the firm’s investment
C)
processes.

Question #46 of 180 Question ID: 1617055

A country's monetary authority believes the long-term rate of real GDP growth is 3%.
To achieve its target inflation rate of 2%, the central bank sets its policy rate at 4%.
Current monetary policy in this country is best described as:

A) neutral.
B) expansionary.
C) contractionary.

Question #47 of 180 Question ID: 1617079

A company's financial statement footnotes are least likely to provide information

about:

A) future capital needs.

B) debt agreement terms.
C) future lease payments.

Question #48 of 180 Question ID: 1617203

Laura Field, CFA, is a portfolio manager for Valley Investments. Valley owns a
significant position in Datatronics, a local company. Most portfolios managed by Valley
on behalf of its clients also include Datatronics stock. Field meets with a prospect and
discusses potential equities the firm might place in her portfolio, including
Datatronics. Field does not mention Valley's position in Datatronics. Field has:
A) not violated the Code and Standards.
B) violated the Code and Standards by not disclosing the firm’s position in Datatronics.
violated the Code and Standards only if Datatronics stock is placed in the prospect’s
C)
portfolio.

Question #49 of 180 Question ID: 1617047

The coefficient of determination in a simple linear regression model is interpreted

most accurately as:

A) the standard deviation of the regression residuals.

B) a statistic that can be used to test the significance of the slope coefficient.
the percentage of variation in the dependent variable that is explained by variation
C)
in the independent variable.

Question #50 of 180 Question ID: 1617081

Interest incurred by a company as part of constructing an asset over multiple

accounting periods is least likely to be included on the income statement in:

A) interest expense.
B) cost of goods sold.
C) depreciation expense.

Question #51 of 180 Question ID: 1617052

When expansionary fiscal policy results in reduced capital investments by firms, it is

most likely that:

A) interest rates are too high due to inappropriate money supply growth.
a fall in aggregate demand has reduced the expected profitability of capital
B)
investment.
C) fiscal deficits have resulted in a crowding-out effect.
Question #52 of 180 Question ID: 1617204

James Copley, CFA, a pension fund manager, receives discounted transactions costs
on his personal brokerage from a firm that executes trades for the pension fund.
Copley is most likely:

A) violating the Standard related to fair dealing.

B) violating the Standard related to loyalty, prudence, and care.
C) not violating the Standards of Practice.

Question #53 of 180 Question ID: 1617072

The least amount of detailed analysis of capital allocation projects is required for:

A) expansion projects.
B) replacement projects that will lead to cost reductions.
C) replacement projects that maintain the existing business.

Question #54 of 180 Question ID: 1617205

Alan Powers, CFA, is a trader with Rogers Securities. His sister works for Potter Steel
and has told him that Potter's earnings, which will be released two days from now, are
significantly less than expectations. Powers receives a buy order for the firm's client
accounts for a block of Potter shares. According to the Code and Standards, Powers'
most appropriate action is to:

A) enter the trade without mentioning the coming earnings disappointment.

ask his compliance officer to place Potter stock on the firm’s restricted list because
B)
he has material nonpublic information, to avoid making the trade.
inform only the firm’s head of trading that the trade would not be in clients’ best
C)
interest, without disclosing the information.
Question #55 of 180 Question ID: 1617206

The Standard concerning diligence and reasonable basis requires members to:

include in a full research report all factors that can potentially have a negative effect
A)
on a recommended security.
exercise independence and thoroughness in making investment recommendations
B)
or in taking investment actions.
make a reasonable effort to ensure that investment performance is communicated
C)
fairly, accurately, and completely.

Question #56 of 180 Question ID: 1617087

Devon Ltd. reports its inventory under the average cost method. During a period of
declining inventory costs, had Devon reported using the FIFO method, its
shareholders' equity and return on equity would most likely be:

Equity ROE

A) higher higher

B) lower lower

C) higher lower

Question #57 of 180 Question ID: 1617039

Given the following joint probability function for the returns on two assets:

Joint Probabilities RB1 = 20% RB2 = 15% RB3 = 10%

RA1 = 10% PA1,B1 = 0.2

RA2 = 0% PA2,B2 = 0.5

RA3 = −10% PA3,B3 = 0.3

Calculating the covariance of the asset returns requires:

A) no other information.
B) the weights for each asset.
C) the variance of each asset’s returns.

Question #58 of 180 Question ID: 1617048

For the coming year, Petrie Ltd. forecasts total revenue of £2,500,000, total costs of
£4,000,000, and total fixed costs of £3,000,000. Petrie expects these same conditions
to persist for the foreseeable future. Based on these forecasts, Petrie should:

A) cease operations.
B) continue to operate in both the short run and the long run.
C) continue to operate in the short run but shut down in the long run.

Question #59 of 180 Question ID: 1617050

A firm in an oligopolistic market will:

A) earn positive economic profits in long-run equilibrium.

B) seldom use quality to differentiate its product.
C) consider the likely response of its rivals when making business decisions.

Question #60 of 180 Question ID: 1617040

An analyst believes XYZ Company's return on equity (ROE) is highly sensitive to
economic growth. She assigns the following probabilities to economic growth and XYZ
Company's ROE:

Recession Normal Boom

Probability 30% 40% 30%

ROE 10% 15% 30%

XYZ pays out 50% of its earnings as dividends. Based on the data in the table, XYZ's
expected growth rate is closest to:

A) 9%.
B) 12%.
C) 18%.

Question #61 of 180 Question ID: 1617188

The Global Investment Performance Standards (GIPS) apply to:

A) only investment management firms that claim GIPS compliance.

B) all investment management firms that employ CFA Charterholders.
all Members and Candidates, in accordance with the Standard on performance
C)
presentation.

Question #62 of 180 Question ID: 1617094

If a public company reports a non-GAAP (non-IFRS) income measure, a reconciliation

of that measure with the most comparable measure under the applicable accounting
standards is required by:

A) IFRS but not U.S. GAAP.

B) U.S. GAAP but not IFRS.
C) both IFRS and U.S. GAAP.
Question #63 of 180 Question ID: 1617207

Brian Crane has passed the Level I and Level II CFA exams on his first attempts and
has registered for the next Level III exam. Which of the following actions by Crane
would most likely violate the Code and Standards?

A) Referring to himself as a Level II CFA.

Putting on his professional résumé that he passed Levels I and II of the CFA exam on
B)
his first attempts.
Referring to himself in a published brochure as a participant in the Chartered
C)
Financial Analyst program, Level III Candidate.

Question #64 of 180 Question ID: 1617073

A company's management is most likely increasing shareholders' wealth if the

company's:

A) average book value of total capital is increasing over time.

B) return on invested capital is greater than its weighted average cost of capital.
market capitalization increases by the sum of the net present values of its
C)
completed projects.

Question #65 of 180 Question ID: 1617208

The Investment Banking Department of MLB&J often receives material nonpublic

information that could have considerable value to MLB&J's brokerage clients. To
comply with the Code and Standards, MLB&J should most appropriately:

ensure that material nonpublic information is not disseminated beyond the firm’s
A)
investment banking, brokerage, and research departments.
encourage the firms involved to release the nonpublic information to the public and
B)
restrict client trades until they do.
restrict proprietary trading in the securities of companies about which the
C)
Investment Banking Department has access to material nonpublic information.
Question #66 of 180 Question ID: 1617093

Atlas Manufacturing has received an advance payment of €10 million from a customer
that is taxable on receipt. For accounting purposes, Atlas will recognize the revenue in
a future period when product is delivered to the customer. As a result of this
transaction Atlas should:

A) create a deferred tax asset.

B) create a deferred tax liability.
C) not create any deferred tax items.

Question #67 of 180 Question ID: 1617059

The spot exchange rate between the U.S. dollar (USD) and the Swiss franc (CHF) is 1.34
USD/CHF. The 1-year riskless interest rate in the United States is 3%, and the 1-year
interest rate in Switzerland is 5%. The arbitrage-free 1-year USD/CHF forward rate is
closest to:

A) 0.761 USD/CHF.
B) 1.315 USD/CHF.
C) 1.366 USD/CHF.

Question #68 of 180 Question ID: 1617037

If the skewness of a random variable's distribution is:

A) positive, the mode is less than the mean, which is less than the median.
B) positive, the mode is less than the median, which is less than the mean.
C) negative, the mode is less than the median, which is less than the mean.

Question #69 of 180 Question ID: 1617080

A user of financial statements should most appropriately interpret an auditor's

disclaimer of opinion to mean the auditor:
A) believes the financial statements are not presented fairly.
B) is unable to express an opinion about the financial statements.
C) has noted exceptions to accounting principles in the financial statements.

Question #70 of 180 Question ID: 1617209

Marshall Hopkins reports data for the Alliance Equity Fund. He states in an
information sheet that "Alliance has produced a one-year return of 37%." This result
was based on Alliance's best year in the past five. He discloses this in a footnote at the
bottom of the information sheet. Hopkins' action is:

A) a violation of the Standard concerning performance presentation.

B) a violation of the Standard concerning duties to clients and prospects.
not a violation of the Code and Standards since he has disclosed the source of the
C)
37% return number.

Question #71 of 180 Question ID: 1617077

According to pecking order theory, managers are most likely to prefer financing a
project:

A) by issuing debt.
B) by issuing equity.
C) with internally generated capital.

Question #72 of 180 Question ID: 1617051

The kinked demand curve model of oligopoly is based on a belief that:

A) firms will follow the market leader in setting prices.

a price increase by one firm will likely not be followed by its competitors, but a
B)
decrease will.
one firm has a significant cost advantage and produces a relatively large proportion
C)
of the industry’s output.
Question #73 of 180 Question ID: 1617044

A researcher constructs a hypothesis test to determine whether the abnormal returns

to an investment strategy are positive. Using 60 months of data, he has found the
average monthly abnormal returns for the strategy to be 1.1% with a standard
deviation of 4.75%. Based on these results, the researcher would reject the null
hypothesis at:

A) both a 5% and a 2.5% significance level.

B) neither a 5% nor a 2.5% significance level.
C) a 5% significance level but not a 2.5% significance level.

Question #74 of 180 Question ID: 1617096

An analyst prepared the following selected horizontal common-size balance sheet

data for Spider Corporation:

Year 20X5 20X6 20X7

Current assets 113.6 106.1 101.4

Current liabilities 130.7 128.9 131.0

In the base year, Spider's current ratio was 1.5. Spider's current ratio as of December
31, 20X7, is closest to:

A) 0.77.
B) 1.16.
C) 1.29.

Question #75 of 180 Question ID: 1617210

Sue Denny, CFA, manages a portfolio for a client. The client calls Denny and requests a
trade that Denny believes is unsuitable according to the client's IPS. Denny
determines that this trade would have a material impact on the risk characteristics of
the client's overall portfolio. According to the Code and Standards, Denny's most
appropriate action is to:

A) follow her firm’s policies for obtaining client approval for this trade.
B) open an unmanaged account in which the client may execute this trade.
C) discuss with the client whether this trade indicates a need to update the IPS.

Question #76 of 180 Question ID: 1617085

Free cash flow to equity is best approximated by:

A) operating cash flow + depreciation − net borrowing.

B) operating cash flow − fixed capital investment + net borrowing.
C) operating cash flow − investment in working capital − fixed capital investment.

Question #77 of 180 Question ID: 1617053

Fiscal policy multipliers suggest that if the government increases both spending and
taxes by the same amount, the overall effect on the economy is most likely:

A) neutral because the fiscal deficit remains unchanged.

a decrease in aggregate demand because the autonomous tax multiplier is greater
B)
than the government expenditure multiplier.
an increase in aggregate demand because the government expenditure multiplier is
C)
greater than the autonomous tax multiplier.

Question #78 of 180 Question ID: 1617211

Which of the following statements regarding compliance with the Code and Standards
is most accurate?
 A member or candidate must only comply with local laws when the Code and
A)
Standards are more strict.
A member or candidate must comply with the strictest requirement among
B) regulatory rules, local laws, or the Code of Ethics and Standards of Professional
Conduct.
A member or candidate may trade on material nonpublic information if it is
C) permitted both in her country of residence and the country where she does
business.

Question #79 of 180 Question ID: 1617098

Selected financial data for Mallard Company appear in the following table:

20X1 20X2

Sales 3,000 3,600

Gross profit 1,500 1,700

Earnings before interest and taxes 1,000 1,500

Earnings before taxes 700 1,050

Net income 560 730

Total assets 5,000 6,000

Total equity 4,000 5,000

Return on equity 14.0% 14.6%

The increase in Mallard's return on equity in 20X2 can most likely be attributed to the
company's:

A) increased leverage.
B) increased operating margin.
C) decreased effective tax rate.

Question #80 of 180 Question ID: 1617078

Pricing strategies that involve price discrimination most likely include:

A) off-peak pricing.
B) cost-based pricing.
C) penetration pricing.

Question #81 of 180 Question ID: 1617049

Economies and diseconomies of scale are most likely to determine the shape of the:

A) long-run average total cost curve.

B) long-run average fixed cost curve.
C) short-run average total cost curve.

Question #82 of 180 Question ID: 1617041

A portfolio's shortfall risk is most accurately described as the probability that the
portfolio's return over a given time period is less than:

A) a particular target return.

B) the risk-free rate.
C) the return on a comparable benchmark portfolio.

Question #83 of 180 Question ID: 1617042

Which of the following is most likely a limitation of a Monte Carlo simulation?

A) Inputs are restricted to historical data.

B) Simulation parameters can be misspecified.
C) The method is inappropriate for valuing complex securities.

Question #84 of 180 Question ID: 1617084

Which of the following statements best describes the flexibility afforded in the cash
flow statement classification of interest paid and dividends received (from
investments) under IFRS?

Interest paid Dividends received

A) CFO or CFF CFO or CFI

B) CFO or CFI CFO or CFI

C) CFO or CFI CFO or CFF

Question #85 of 180 Question ID: 1617212

Which of the following actions most likely violates the Standard concerning market
manipulation?

Entering an order to buy a large block of a thinly traded stock whenever its price
A)
falls below $10.
Waiting for a down day in the market to release a ratings downgrade to maximize its
B)
impact on a stock’s price.
Posting a company’s unexpectedly weak earnings report and negative comments to
C)
a popular Internet forum for investors.

Question #86 of 180 Question ID: 1617213

Which of the following would most likely violate CFA Institute's rules regarding
members' personal integrity and behavior?

A) Failing to report taxable rental income from her vacation home.

B) Being arrested for disorderly conduct and spending a night in police custody.
C) Filing for bankruptcy.

Question #87 of 180 Question ID: 1617089

A company appraises its depreciable fixed assets and determines that it must record
an impairment. What will be the most likely effect of the impairment on future years'
depreciation expense and fixed asset turnover?

A) Both depreciation expense and fixed asset turnover will decrease.

B) Both depreciation expense and fixed asset turnover will increase.
C) Depreciation expense will decrease and fixed asset turnover will increase.

Question #88 of 180 Question ID: 1617071

Relative to industry averages, Cintax, Inc.'s cash conversion cycle is high and its
inventory turnover is low. These conditions are most likely the case because Cintax
has relatively high:

A) average days of payables.

B) average days of inventory.
C) credit purchases of raw materials.

Question #89 of 180 Question ID: 1617214

Rose Worth, CFA, is analyzing the import/export firm Transocean Trading. A large
increase in tariffs has been proposed, which Worth believes would reduce
Transocean's earnings. Worth speaks with her Congressman, Jerome Horwitz, who
tells her that he is certain the tariff increase does not have enough support to become
law. Worth distributes a report that says, "Transocean's earnings next year will be
within management guidance because the tariff increase will not be enacted." Worth
has most likely violated the Standard related to:

A) communication with clients.

B) preservation of confidentiality.
C) material nonpublic information.

Question #90 of 180 Question ID: 1617038

An analyst has estimated a probability of 45% that a stock from a specific population
will have an earnings increase greater than 10% for the current year. She has also
estimated a probability of 70% that such a stock will increase its dividend during the
year. For a stock that does not have an increase in earnings greater than 10%, she
estimates that the probability of a dividend increase is only 30%. Based on these
expectations, the probability that a stock which increases its dividend will have a
greater-than-10% increase in earnings is closest to:

A) 60%.
B) 63%.
C) 66%.

Question #91 of 180 Question ID: 1617142

Which of the following covenants is most likely to appear in the indenture for a
company's bonds?

A) The company’s debt-to-equity ratio must not fall below 0.40.

B) The company’s interest coverage ratio must remain below 2.5x.
C) The company may not issue additional debt that is senior to this debt.

Question #92 of 180 Question ID: 1617177

In an investment policy statement, the execution of the policy and permitted asset
types are typically specified in the:

A) appendices.
B) investment objectives.
C) investment guidelines.

Question #93 of 180 Question ID: 1617159

When evaluating alternative investment funds in comparison to traditional funds, an

investor can expect that alternative investment funds will:
A) have higher management fees.
B) require lower capital commitments.
C) provide more detail on returns earned.

Question #94 of 180 Question ID: 1617151

An index of dividend-paying stocks has a value of 1,000. The risk-free interest rate is
4%. The no-arbitrage 1-year forward price of the index is:

A) equal to 1,000e0.04.
B) less than 1,000e0.04.
C) greater than 1,000e0.04.

Question #95 of 180 Question ID: 1617173

Ralph Olney, CFA, is working on an investment policy statement for a client and has
identified risk tolerance as high, investment horizon as long, and liquidity need as low.
Based only on this information, Olney's client is least likely:

A) an endowment fund.
B) a life insurance company.
C) a defined benefit pension plan.

Question #96 of 180 Question ID: 1617125

Axioma Group submits a non-competitive bid in a sovereign government debt auction.

At the end of the auction, Axioma:

A) will not receive any securities.

B) will receive securities, regardless of the auction outcome.
C) may or may not receive securities, depending on the auction outcome.
Question #97 of 180 Question ID: 1617117

In an environment of uncertainty about inflation and interest rates, scenario analysis

would be most appropriate for valuing a:

A) food manufacturer.
B) pharmaceutical company.
C) consumer lending company.

Question #98 of 180 Question ID: 1617181

Which of the following statements is least accurate regarding the sources of

organizational risk?

A) Financial risks come from market exposure.

B) Interactions among risks occur infrequently.
C) Non-financial risks come from external sources.

Question #99 of 180 Question ID: 1617167

A private equity fund organized in Year 1, began accepting capital commitments in

Year 2, and made its first investment in Year 3. The vintage year for the fund is:

A) Year 1.
B) Year 2.
C) Year 3.

Question #100 of 180 Question ID: 1617115

A country's economy is currently experiencing negative GDP growth, high

unemployment, and decreasing home construction. Which of the following industries
is most likely to perform well during the current phase of the business cycle?

A) Travel services.
B) Consumer staples.
C) Industrial machinery.

Question #101 of 180 Question ID: 1617137

An investor holds a 5-year, 3.0% fixed-coupon bond with semiannual payment, trading
at par value. The bond's annualized modified duration is 5.6 and annualized convexity
is 28. The investor expects interest rates to decline by 54 bps. The expected
percentage change in the price of the bond is closest to:

A) 2.98%.
B) 3.02%.
C) 3.07%.

Question #102 of 180 Question ID: 1617174

The portfolio approach to investing is most accurately described as:

evaluating individual investments by their contribution to the risk and return of a

A)
portfolio.
rebalancing the portfolio to minimize the expected risk for a given level of expected
B)
return.
creating a diversified portfolio by selecting investments with the best risk-adjusted
C)
returns.

Question #103 of 180 Question ID: 1617062

In capital market theory, the efficient frontier is:

A) a straight line when a risk-free asset is available.

B) the set of portfolios with the least risk for each possible value of expected returns.
the set of portfolios with the highest expected return for each possible level of
C)
portfolio risk.
Question #104 of 180 Question ID: 1617113

Which of the following would most likely increase a profitable company's return on
equity?

A) Issuing new common stock to retire firm debt.

B) Issuing new common shares to fund an expansion.
C) Issuing debt to repurchase the firm’s outstanding common stock.

Question #105 of 180 Question ID: 1617172

Hedge fund strategies such as convertible arbitrage fixed income and high yield fixed
income are most accurately described as:

A) event-driven.
B) opportunistic.
C) relative value.

Question #106 of 180 Question ID: 1617126

A non-callable corporate bond with a coupon of 3% and a YTM of 3.5% is currently

trading at 98% of par. If the YTM immediately decreased by 50 bp, the bond's price
would increase by 4%. If the YTM immediately increased by 50 bp, the bond's price
would decrease by:

A) 4%.
B) less than 4%.
C) more than 4%.

Question #107 of 180 Question ID: 1617104

The type of stock index that would be most likely to require adjustment in response to
a company issuance of new shares is a:

A) price weighted index.

B) equal weighted index.
C) market capitalization weighted index.

Question #108 of 180 Question ID: 1617182

Which of the following is least likely a component of a risk management framework?

A) Minimizing and eliminating risks.

B) Monitoring risk exposures over time.
C) Identifying and measuring existing risks.

Question #109 of 180 Question ID: 1617134

For a bond trading at a discount that has an effective duration of 8.5, the actual price
change per 1% change in its yield to maturity:

A) is less than 8.5%.

B) is greater than 8.5%.
C) may be greater or less than 8.5%.

Question #110 of 180 Question ID: 1617175

Applications of distributed ledger technology in finance most likely include:

A) tokenization of ownership documents.

B) order execution by algorithmic trading.
C) automated platforms for investment advice.
Question #111 of 180 Question ID: 1617118

A fixed growth rate that accounts for expected inflation is most appropriate for
forecasting:

A) cost of goods sold.

B) distribution expenses.
C) general and administrative expenses.

Question #112 of 180 Question ID: 1617160

For an investment structured as a partnership, what can be specified in a partnership

agreement that allows limited partners to recover incentive fees when returns on
fund investments exited early are better than investments on subsequent returns?

A) Catch-up clause.
B) Clawback provision.
C) Deal-by-deal waterfall.

Question #113 of 180 Question ID: 1617060

Ed Smith has risk-return indifference curves that are steeper than those of Meg Jones.
Which of the following statements best describes the risk preferences of the investors
and risk-return characteristics of their optimal portfolios, assuming they have the
same market expectations?

Smith is more risk averse than Jones, and his optimal portfolio has less risk than
A)
Jones’s optimal portfolio.
Smith is less risk averse than Jones, and his optimal portfolio has a lower expected
B)
return than Jones’s optimal portfolio.
Smith is more risk averse than Jones, and his optimal portfolio has a greater
C)
expected return than Jones’s optimal portfolio.

Question #114 of 180 Question ID: 1617161

Alternative investments are least likely to:

A) provide less liquidity compared to traditional investments.

B) have returns negatively correlated with traditional investments.
C) require larger capital outlays compared to traditional investments.

Question #115 of 180 Question ID: 1617183

To assess the sensitivity of the value of a derivative to the price of its underlying asset,
an analyst will focus on the derivative's:

A) vega.
B) delta.
C) gamma.

Question #116 of 180 Question ID: 1617119

On Thursday, August 10, a company announces that it will pay dividends of $0.50 per
share on Wednesday, November 22. The holder-of-record date is Wednesday,
November 8. Equities in this market settle in two business days. Assuming no holidays
in any of the months, the last trading day on which investors can buy the company's
shares and receive this dividend is:

A) Monday, November 6.
B) Tuesday, November 7.
C) Monday, November 20.

Question #117 of 180 Question ID: 1617128

Kantarow Inc. issued a 2% semiannual coupon bond four years ago. Currently, the
bond has one year remaining to maturity and is trading at a price of 99.73. Its
government benchmark bond, a one-year, 0.90% semiannual coupon bond, is trading
at a price of 100.12. The Kantarow bond's G-spread is closest to:

A) 75 bps.
B) 150 bps.
C) 228 bps.

Question #118 of 180 Question ID: 1617147

An investor with a need to hedge interest rate risk and a high requirement for liquidity
should most appropriately hedge with:

A) swaps.
B) Futures
C) forwards.

Question #119 of 180 Question ID: 1617169

A closed-end REIT with a finite life has undertaken the strategy of investing in
distressed properties and pursuing large-scale redevelopments. This real estate
strategy is best described as:

A) Core-plus.
B) Value-add.
C) Opportunistic.

Question #120 of 180 Question ID: 1574580

Based on a questionnaire about investment risk, an advisor concludes that an

investor's risk tolerance is high, but based on an analysis of the client's income needs
and time horizon, he concludes the investor's risk tolerance is low. The most
appropriate action for the advisor is to:

A) emphasize stocks over bonds.

B) emphasize bonds over stocks.
C) educate the client about investment risk and re-administer the questionnaire.
Question #121 of 180 Question ID: 1617116

In conducting an industry analysis for a firm, an analyst would most likely put a higher
valuation on a company, all other things equal, if the industry's:

A) capacity utilization is low.

B) Herfindahl-Hirschman index is low.
C) market shares have been stable.

Question #122 of 180 Question ID: 1617135

An analyst estimates the prices that would result from changes in yield to maturity for
an option-free, 10-year coupon bond using the bond's modified duration. His price
estimates will be:

A) too low for a YTM increase and too high for a YTM decrease.
B) too high for a YTM increase and too low for a YTM decrease.
C) too low for both an increase and decrease in YTM.

Question #123 of 180 Question ID: 1617157

A synthetic short position in a common stock can be created by combining a:

A) long put position, a long T-bill position, and a short call position.
B) short put position, a long T-bill position, and a long call position.
C) long put position, a short T-bill position, and a short call position.

Question #124 of 180 Question ID: 1617164

A disadvantage of using the multiple of invested capital as a performance measure for

private capital investments is that it does not consider:

A) the timing of cash flows.

B) the value of any remaining assets.
C) the fund’s performance in earlier periods.

Question #125 of 180 Question ID: 1617108

Which of the following is least likely an identified market pricing anomaly?

Average equity returns during the month of January are higher than returns in any
A)
other month.
Purchasing shares of an initial public offering when they first start trading produces
B)
positive risk-adjusted, long-term returns on average.
Shares of firms that have reported positive earnings surprises have had positive
C)
abnormal returns on average over the period after the earnings announcement.

Question #126 of 180 Question ID: 1617101

An investor bought a stock on margin one year ago when its price was $50. The
margin requirement was 60%. The current price of the stock is $75. The interest rate
on the margin loan was 10%. Ignoring transactions costs, the investor's net return on
this transaction is closest to:

A) 76.67%.
B) 83.33%.
C) 115.00%.

Question #127 of 180 Question ID: 1617132

An investor purchases a newly issued 15-year bond at a YTM of 8% when the bond's
Macaulay duration is 10 years. Shortly after purchase, the market yield on the bonds
increases to 9% and remains there until maturity. Assuming the bond does not
default, the investor can expect to earn an annual rate of return greater than 8%:

A) if the bond is sold after 7 years.

B) if the bond is sold after 12 years.
C) at no point during the bond’s life.
Question #128 of 180 Question ID: 1617162

For an investment in a private capital partnership, management fees are most likely
calculated as a percentage of the:

A) total amount of investor funds committed to the partnership at its inception.

B) amount of investor funds that have actually been invested in portfolio companies.
total (market or model) value of the portfolio companies held in the portfolio at
C)
year-end.

Question #129 of 180 Question ID: 1617105

Consider the following three stocks that constitute a stock market index.

Stock Beginning Price Ending Price # Shares (000s)

X 200 250 100

Y 100 130 1,000

Z 10 11 20,000

Market value-weighted and price-weighted indexes would be most sensitive to which

of these stocks?

Both a market value-weighted index and a price-weighted index are most sensitive
A)
to Stock X.
A market value-weighted index is most sensitive to Stock Z, and a price-weighted
B)
index is most sensitive to Stock X.
A market value-weighted index is most sensitive to Stock Z, and a price-weighted
C)
index is most sensitive to Stock Y.

Question #130 of 180 Question ID: 1617180

An investor who chooses to invest her annual bonus in growth stocks, while investing
her savings from income in government bonds, is most likely exhibiting:
A) framing bias.
B) conservatism bias.
C) mental accounting bias.

Question #131 of 180 Question ID: 1617148

Which of the following statements about derivatives is most accurate?

Futures contracts are not forward commitments because the deposit of a margin
A)
account eliminates the obligation to cover losses incurred on the contract.
Credit default swaps are contingent claims because payment by the protection seller
B)
is dependent on a future credit event.
Call options that are purchased in the money are forward commitments because the
C)
seller is obligated to sell the asset upon exercise by the holder.

Question #132 of 180 Question ID: 1617171

The category of alternative investments most likely to produce current income as well
as the potential for appreciation in value is:

A) timberland.
B) commodities.
C) infrastructure.

Question #133 of 180 Question ID: 1617112

Which of these statements about equity securities is most accurate?

A firm that fails to pay a scheduled preferred stock dividend is considered to be in

A)
default.
Other things equal, putable shares are more valuable to the shareholder than
B)
nonputable shares.
When corporate matters are subject to a shareholder vote, each common share
C)
represents one vote.
Question #134 of 180 Question ID: 1617127

Scott Malooly recently purchased a $100,000 face value, semi-annual coupon bond
from a dealer that quoted a price of 105.19. He received an invoice for $107,390. The
most likely explanation is that the difference represents:

A) interest that Malooly owed at settlement.

B) the commission on the trade.
C) the change in bond price between the purchase date and the settlement date.

Question #135 of 180 Question ID: 1617133

An investor bought a 3% option-free 12-year bond at a yield to maturity of 4.6% on a

semiannual bond basis. If she sells this bond after seven years for 91.41, she will
realize:

A) a capital loss.
B) a capital gain.
C) neither a capital gain nor capital loss.

Question #136 of 180 Question ID: 1617140

The yield spread on a 5-year corporate bond is most likely to widen as a result of a(n):

A) increase in the bond’s credit rating.

B) decrease in market liquidity for the bond.
C) decrease in the 5-year government note yield.

Question #137 of 180 Question ID: 1617121

Given the following assumptions about a company's financial estimates:

Earnings retention rate at 40%.

Required rate of return, ke, of 12.5%.
Return on equity (ROE) of 11%, expected to remain constant.
Estimated earnings per share (EPS) for next year of $2.75.

The company's estimated leading P/E ratio and share value are closest to:

P/E ratio Share value

A) 7.41 $20.40

B) 7.41 $18.65

C) 6.78 $18.65

Question #138 of 180 Question ID: 1617065

Over a recent period, an investment portfolio had a positive M-squared alpha but its
Jensen's alpha was negative. A portfolio manager should conclude that the portfolio:

A) had a Sharpe ratio less than that of the market portfolio.

B) returned more than its equilibrium expected return based on its systematic risk.
lies on a capital allocation line that has a slope greater than that of the capital
C)
market line.

Question #139 of 180 Question ID: 1617158

When pricing European options with a binomial model, the expected payoff at
expiration is discounted at an interest rate that:

A) does not include a risk premium.

B) depends on investor preferences.
C) reflects the probabilities of up-moves and down-moves.
Question #140 of 180 Question ID: 1617123

Contingent convertible bonds differ from other bonds in that:

A) the issuer has the option to exchange them for equity shares.
B) the bondholder has the option to convert them to equity shares.
they will convert to equity shares if the issuing firm’s equity is less than the
C)
regulatory minimum.

Question #141 of 180 Question ID: 1617122

Hal Peterson, CFA, is calculating an enterprise value for Shepherd Company. Peterson
should most appropriately sum the market values of the firm's outstanding debt and
equity:

A) without adjustment.
B) and subtract the value of its cash and short-term investments.
C) and subtract the value of its goodwill and other intangible assets.

Question #142 of 180 Question ID: 1617170

Which of the following is a disadvantage of direct investments in real estate?

A) The initial outflow needed for the investment tends to be relatively high.
Noncash depreciation and interest expense are not typically tax deductible to the
B)
investor.
C) Returns tend to be highly correlated with stock and bond investments.

Question #143 of 180 Question ID: 1617146

For securities backed by residential mortgages, the structure that is most likely to
provide credit enhancement is:

A) sequential-pay tranches.
B) PAC and support tranches.
C) senior and subordinated tranches.

Question #144 of 180 Question ID: 1617109

A technical analyst believes that fundamental analysis cannot be used to earn positive
risk-adjusted returns in the equities market but that technical analysis of price trends
and chart formations can be used to earn positive risk-adjusted returns. It is most
accurate to say the analyst believes markets are:

A) neither weak-form nor semi-strong form efficient.

B) weak-form efficient but not semi-strong form efficient.
C) semi-strong form efficient but not strong-form efficient.

Question #145 of 180 Question ID: 1617178

A portfolio manager has identified a set of asset classes that closely represents the
universe of securities that are permitted investments for an endowment fund. After
estimating the expected risk, returns, and correlations for these asset classes, the
manager identifies a portfolio that best meets the risk and return objectives identified
in the client's IPS. This portfolio reflects the manager's:

A) strategic asset allocation for the fund.

B) integral asset allocation for the fund.
C) tactical asset allocation for the fund.

Question #146 of 180 Question ID: 1617152

Other things equal, an increase in the cash flows from an underlying asset during the
life of a forward contract would result in a forward contract with a:

A) lower price at initiation.

B) lower value at initiation.
C) higher price at initiation.
Question #147 of 180 Question ID: 1617149

Under hedge accounting rules for derivatives, an interest rate swap may be classified
as:

A) a fair value hedge or a cash flow hedge.

B) a fair value hedge or a net investment hedge.
C) a cash flow hedge or a net investment hedge.

Question #148 of 180 Question ID: 1617143

The practice of notching by securities rating agencies refers to:

A) adjusting bond ratings for maturity.

B) using “plus” or “minus” signs with bond ratings.
C) giving different ratings to bonds issued by the same firm.

Question #149 of 180 Question ID: 1617165

Bill Guillen invests $10 million in a fund-of-funds that allocates 30% to hedge fund X,
30% to hedge fund Y, and 40% to hedge fund Z. The fund-of-funds has a fee structure
of 1 and 10, with the management fee calculated on the amount of the initial
investment and incentive fees calculated independently of management fees. Returns
after fees for the three hedge funds over the year are as follows: fund X = 14%, fund Y
= –8%, and fund Z = 22%. Guillen's return on his investment in the fund-of-funds is
closest to:

A) 8.5%.
B) 9.6%.
C) 10.6%.

Question #150 of 180 Question ID: 1617130

From which data could an analyst calculate the implied 1-year forward rate three
years from now? The:

A) 3-year spot rate and the 4-year spot rate.

B) 1-year spot rate and the 3-year spot rate.
C) 3-year and 4-year government bond yields.

Question #151 of 180 Question ID: 1617102

A secondary securities market in which liquidity is provided by those seeking to trade

is most appropriately referred to as:

A) a quote-driven market.
B) an order-driven market.
C) an over-the-counter market.

Question #152 of 180 Question ID: 1617168

Which of the following statements is most accurate regarding the stages of venture
capital investment?

A) Angel investors are more likely to be individuals than venture capital funds.
B) Mezzanine-stage financing refers to debt with the option to convert to equity.
C) Later stage financing typically occurs as the company is preparing for its IPO.

Question #153 of 180 Question ID: 1617153

An investor notes that the price for a futures contract on an asset is less than the
price for an otherwise identical forward contract on the asset. It is most likely that
interest rates are expected to be:

A) constant.
B) positively correlated with the price of the underlying asset.
C) negatively correlated with the price of the underlying asset.
Question #154 of 180 Question ID: 1617138

A bond that is trading at 101.3 has an effective duration of 16.4 and an effective
convexity of −168. An estimate of the percentage price decrease in this bond as a
result of a positive parallel shift in the yield curve of 30 basis points is closest to:

A) 4.9%.
B) 5.0%.
C) 5.1%.

Question #155 of 180 Question ID: 1617129

A floating rate note with three years to maturity is valued at 101.34 percent of par. For
this bond it is most likely that the:

A) required margin is less than the quoted margin.

B) required margin is less than the discount margin.
C) reference margin is less than the discount margin.

Question #156 of 180 Question ID: 1617063

James Franklin, CFA, has high risk tolerance and seeks high returns. Based on capital
market theory, Franklin would most appropriately hold:

A) a high-risk biotech stock.

B) a high-beta portfolio of risky assets.
C) a leveraged position in the market portfolio.

Question #157 of 180 Question ID: 1617114

An investor in the United States purchases receipts on a U.S. exchange that each
represent ownership of 1.7 shares of a firm that trades on the Bulgarian Stock
Exchange. If the investor has the right to vote the shares, he has most likely
purchased:

A) global depository receipts.

B) sponsored depository receipts.
C) global registered shares.

Question #158 of 180 Question ID: 1617154

The primary difference between a fixed-for-floating interest rate swap and a series of
forward rate agreements (FRAs) that is otherwise equivalent to the swap is that each
FRA may have a different:

A) fixed rate.
B) value at initiation.
C) notional principal.

Question #159 of 180 Question ID: 1617144

A distinguishing characteristic of covered bonds relative to other asset-backed

securities is that:

A) covered bond investors have dual recourse.

B) covered bonds are set up through a bankruptcy remote entity.
the assets collateralizing covered bonds are removed from the balance sheet of the
C)
issuer.

Question #160 of 180 Question ID: 1617110

Markets tend to become more efficient with increases in:

A) arbitrage trading and transactions costs.

B) regulations that require disclosures and restrict short selling.
C) the number of participants and the amount of available information.

Question #161 of 180 Question ID: 1617163

The waterfall structure that is most advantageous to the limited partners in a private
equity fund is:

A) a European waterfall structure.

B) a deal-by-deal waterfall structure.
C) an American waterfall structure with a clawback provision.

Question #162 of 180 Question ID: 1617124

The repo margin in a repurchase agreement refers to the:

A) annualized percentage return to the lender of funds.

B) difference between the purchase price and market price of the underlying bond.
difference between the purchase price and the repurchase price of the underlying
C)
bond.

Question #163 of 180 Question ID: 1617179

Which of the following would most appropriately be termed an absolute risk

objective? Return should be:

A) 5% or more each year with a 95% probability.

B) greater than or equal to the risk-free rate.
C) above the return on the S&P 500 index with a 90% probability.

Question #164 of 180 Question ID: 1617107

Hope Company has grown from a small-capitalization firm to a mid-capitalization firm.
In which type of equity index is Hope most likely to be added or removed as a result?

A) Style index.
B) Sector index.
C) Multi-market index.

Question #165 of 180 Question ID: 1617150

Which of the following statements is least accurate regarding the use of derivative
instruments?

A) Short positions in derivatives can be used to reduce the risk of a portfolio.

B) Derivative markets provide price information and can increase market efficiency.
Derivative positions incur large transaction costs compared to direct investments in
C)
the underlying assets.

Question #166 of 180 Question ID: 1617145

The type of securities most likely to rely on active management of portfolio assets to
generate their promised cash flows is:

A) securitized automobile loans.

B) collateralized debt obligations.
C) collateralized mortgage obligations.

Question #167 of 180 Question ID: 1617111

Assuming that asset prices are semistrong-form efficient, the portfolio manager:

A) can add no value.

B) can add value by recommending an appropriate asset allocation.
C) can add value using fundamental analysis, but not by using technical analysis.
Question #168 of 180 Question ID: 1617064

An investor has a portfolio of 10 individual stocks. and the investor adds another 10
stocks with returns that are less than perfectly correlated with the returns on the
original portfolio. These additions are least likely to decrease the portfolio's:

A) total risk.
B) systematic risk.
C) unsystematic risk.

Question #169 of 180 Question ID: 1617156

A decrease in the risk-free interest rate will have what effects on the values of a call
option and a put option?

Value of a call option Value of a put option

A) Decrease Increase

B) Increase Increase

C) Increase Decrease

Question #170 of 180 Question ID: 1617141

Koho Inc.'s 10-year senior unsecured bonds are currently rated Ba1 by Moody's. If
Moody's upgrades Koho's rating by notch, the bonds will:

A) remain high yield, and the bond’s yield is likely to increase.

B) become investment grade, and the bond’s yield is likely to decrease.
C) become investment grade, and the bond’s yield is likely to increase.

Question #171 of 180 Question ID: 1617061

The covariance of rates of return on two securities is most accurately described as the
correlation of the asset returns:

A) multiplied by the product of the assets’ variances of returns.

B) divided by the product of the assets’ standard deviations of returns.
C) multiplied by the product of the assets’ standard deviations of returns.

Question #172 of 180 Question ID: 1617106

Based on the information in the following table:

Shares Price Price Dividends Paid

Security
Outstanding 12/31/20X1 3/31/20X2 During the Quarter

Acme Inc. 2 million $31.00 $34.10 $0.30

Baker Ltd. 3 million $28.00 $33.60 $0.70

Charlie
5 million $42.00 $35.70 $0.40
Corp.

The type of index for these three securities that will have the greatest price return is a:

A) price-weighted index.
B) market value-weighted index.
C) equal-weighted arithmetic index.

Question #173 of 180 Question ID: 1617103

Alexa Fiedler has issued the following orders to her broker when GMB Corp. is trading
at 29 and RML Corp. is trading at 17:

1. Buy 200 shares of GMB if the price increases to 31.

2. Sell 400 shares of RML for 16 or more.

Fiedler has issued what types of orders?

GMB RML
A) Limit buy Limit sell

B) Stop buy Limit sell

C) Limit buy Stop sell

Question #174 of 180 Question ID: 1617155

The price of an interest rate swap is equal to:

A) zero at initiation.
B) its par swap rate.
C) its value to the fixed-rate payer.

Question #175 of 180 Question ID: 1617184

The process of selecting firm assets by considering their various risk characteristics
and how they combine to meet the firm's risk tolerance is most appropriately referred
to as risk:

A) budgeting.
B) governance.
C) management.

Question #176 of 180 Question ID: 1617131

A par bond yield curve is constructed from the yields of:

A) hypothetical bonds.
B) government bonds trading at par.
C) corporate bonds trading at or near face value.
Question #177 of 180 Question ID: 1617136

The price value of a basis point for a 7% coupon, semiannual pay, 10-year bond with a
$1,000 par value, currently trading at par, is closest to:

A) $0.71.
B) $1.42.
C) $67.10.

Question #178 of 180 Question ID: 1617120

Marc Juneau, CFA, an equity analyst, is valuing Nova Games, Inc. He expects the
company to grow at 30% for three years. Beginning in year 4, the growth rate is
expected to reach 7% and stabilize. The required return for this type of company is
estimated at 13%. The dividend in year 1 will be $3.00. The value Juneau should
calculate for the stock of Nova Games is closest to:

A) $65.
B) $72.
C) $87.

Question #179 of 180 Question ID: 1617176

For which of the following types of investment companies are shares least likely to
trade at their net asset value?

A) Venture capital fund.

B) Exchange-traded fund.
C) Open-end mutual fund.

Question #180 of 180 Question ID: 1617166

The Triangle-Base hedge fund reported the following numbers at the end of its third
year of trading:

Opening fund value (after prior year fees): $320.0 million

Ending fund value (before fees): $345.0 million

Management fee (2%): $6.4 million

Incentive fee (20%): $0.0 million

The most likely reason no incentive fee was paid for the year is that:

the fund has a hard hurdle rate of 5% and the incentive fee is calculated net of
A)
management fees.
the fund has a soft hurdle rate of 8% and the incentive fee is calculated independent
B)
of management fees.
the incentive fee is calculated using a high-water mark and the fund value has
C)
already increased by more than 20% in years 1 and 2 of trading.