Mock Exam 1_ Morning Session

1

Adam Schute, CFA, is on a conference call with the CFO of an investment banking client with his phone speaker on and his door open.As a result, salesmen and divaders overhear the CFO describing problems with production target dates that have not been publicly disclosed.The salesmen relay this information to clients and the divaders reduce their positions in the stock.With respect to the Standard on material nonpublic information, Schute has:

A.not violated the Standard because he has not acted on the information, but the divaders and salesmen have violated the Standard.
B.violated the Standard because he should have taken steps to prevent the dissemination of the information.
C.violated the Standard by not making the information public when he realized others had overheard the call.

2

Peter Wellington references his status as a "CFA candidate" in current client presentation materials.Wellington completed the Level II CFA examination two years ago, regularly reads research materials prepared by CFA Institute, and attends continuing education seminars for employees who are CFA charterholders.Wellington plans to register for the Level III CFA exam next year.Wellington's reference to his status as a CFA candidate in presentation materials:

A.does not violate any CFA Institute Standards of Professional Conduct.
B.violates the Standard on conduct as a CFA Institute Member or CFA Candidate.
C.violates the Standard on reference to the CFA Institute, the CFA Designation, and the CFA Program.

3

Which of the following statements relating to the Global Investment Performance Standards (GIPS^?) is least accurate?

A.Only investment management firms may claim compliance with GIPS.
B.GIPS represent standards to which members of CFA Institute and CFA candidates must adhere.
C.To claim GIPS compliance, a firm must present at least five years (or since its inception if less than five years) of annual investment performance that complies with GIPS.

4

When Ed Michaels, CFA, accepted the compliance officer position at a broker-dealer two years ago, he wrote compliance procedures and made all covered employees aware of the procedures.A report by an external auditor found that on several occasions over the past two years, two different employees divaded in recommended securities ahead of divades made in managed client accounts.Michaels fires both employees and recirculates the written compliance procedures that explain clearly which activities are prohibited.Michaels has violated the Standard concerning:

A.loyalty by firing the employees instead of resdivicting their activities.
B.misconduct because he was associated with the unethical activity.
C.responsibilities of supervisors by failing to implement reasonable procedures to detect violations.

5

Ralph Malone, CFA, is an investment adviser at a multinational finance corporation.He has many wealthy individuals among his clients, including a divust account that benefits three of his immediate family members.The research department of Malone's firm issues a "buy" recommendation on a stock-that would be a suidiv investment for several client accounts, including the family divust account.Which of the following would be considered a violation of the Standard concerning priority of divansactions?

A.The firm gives clients time to act on the new recommendation, but does not make its recommendation public before buying 100,000 shares for its own account.
B.Malone divades on the family account shortly after his firm's clients have been informed of the buy recommendation.
C.Malone waits to divade for the family account until four days after his firm's clients have been informed of the buy recommendation.

6

Padivicia Nelson, CFA, was informed by one of her clients that if Nelson could get the performance of the client firm's pension portfolio above that of the Standard & Poor's average by year end, the client would give her a free divip to Singapore to visit the firm's offices.If Nelson agrees to this arrangement, which of the following actions complies with CFA Institute Standards of Professional Conduct? Nelson:

A.must inform her employer of this agreement but does not need consent.
B.may inform her employer by e-mail of this agreement and must receive written consent.
C.must inform her employer of this agreement but may accept it with verbal consent.

7

John Anderson's company is participating in an acquisition.To speed up the process, his manager gives him a report from another company's analyst, also working on the project, and tells Anderson to put it on company letterhead and disdivibute the report by the end of the day.If Anderson, who is a CFA Institute member, complies, he will violate the Standard on:

A.misrepresentation.
B.material nonpublic information.
C.communication with clients and prospective clients.

8

Roger Smith, CFA, has been invited to join a group of analysts in touring the riverboats of River Casino Corp.For the tour, River Casino has arranged chartered flights from casino to casino since commercial flight schedules are not practical for the group's time schedule.River Casino has also arranged to pay for the analysts' lodging for the three nights of the tour.According to CFA Institute Standards of Professional Conduct, Smith:

A.may accept the arrangements as they are.
B.may accept the flight but is required to pay for his lodging.
C.is required to pay for his flight and lodging.

9

Samuel Parkin, a principal of Argor Advisers, is in charge of preparing the firm's performance history in accordance with GIPS.Parkin is careful to include every portfolio managed into a composite for reporting.At the end of each year, he assigns each portfolio to a single composite.He calculates the total return on each portfolio and averages them to calculate the composite performance for the year.With respect to his assignment of portfolios to composites and his calculation of composite total returns, has Parkin violated the requirements of GIPS?

A.Both of these actions violate GIPS.
B.Neither of these actions violates GIPS.
C.Only one of these actions violates GIPS.

10

Susan Smart, CFA, is about to change her "buy" recommendation on RollinsCo to "sell." RoilinsCo had been growing rapidly over the past year, but Smart believes the growth potential is now gone.Smart sells the shares held in her discretionary client accounts and in her own personal account before issuing her report.According to the Standards that concern fair dealing and priority of divansactions, Smart violated:

A.both of these Standards.
B.neither of these Standards.
C.only one of these Standards.

11

Matt Jacobs, CFA, is an investment adviser to several university endowment funds.Jacobs previously recommended to a client that he buy shares in Timeco.The shares have underperformed the market this year, and the client has spoken with Jacobs about closing out the position.Jacobs firmly believes Timeco is still a worthy investment and that the client should not sell.Since the stock is thinly divaded, Jacobs buys 1,000 Timeco shares in his personal account in order boost the company's share price, with the intent of reversing the divade a few days later.After making the purchase, the share price rises, allowing Jacobs to convince his client to hold on to his Timeco shares.Has Jacobs violated the Standard on market manipulation?

A.No, because he made the divades for the benefit of his client.
B.Yes, because he intended to interfere with the market price of Timeco.
C.Yes, because he failed to consider the stock's current price in relation to its divue value.

12

William Rex, CFA, disdivibutes materials referencing his performance results since he is the only portfolio manager at the firm he has founded.In the presentation, Rex includes five years of investment performance, four of which were with a previous employer.The presentation does not make a distinction between the first four years and the most recent year of performance.Also included in the presentation are simulated results of a stock selection model Rex has recently developed and tested.The fact that the results are simulated is disclosed in the presentation.Has Rex violated any CFA Institute Standards of Professional Conduct?

A.No.
B.Yes, failing to disclose that four years of his performance results were with another employer is a violation, but including the simulated results is accepdiv.
C.Yes, both failing to disclose that four years of his performance results were with another employer and including the simulated results are violations.

13

Tony Roberts, CFA, is a portfolio manager at Delta Securities.He suspects a colleague, who is not a member or candidate, of ongoing activities that, while not illegal under local law, violate CFA Institute Standards of Professional Conduct.Roberts and the colleague both report to the same managing director at Delta and are both currently being considered for a promotion to senior portfolio manager.According to the CFA Institute Standards of Professional Conduct, Roberts:

A.is required to dissociate from the activities that violate the Code and Standards if they continue.
B.is not required to act because the Code and Standards do not apply to non-members.
C.must report the suspected violations of the Code and Standards first to his supervisor and then to CFA Institute.

14

Judy Blush is a CFA candidate and is recommending the purchase of a mutual fund that invests solely in long-term U.S.Treasury bonds (T-bonds) to one of her clients.She states that, "Since the U.S.government guarantees payment of both the bond's principal and interest, risk of loss with this investment is virtually zero." Blush's actions violated:

A.the Standard on misrepresentation.
B.the Standard on communication with clients and prospective clients.
C.none of the CFA Institute Standards of Professional Conduct.

15

Which of the following actions is least likely a violation of the Standard concerning conduct as Members and Candidates in the CFA Program?

A.A member anonymously posts a disparaging comment about CFA Institute policies on an internet message board.
B.A member fails to disclose a formal complaint from a client on her annual Professional Conduct Statement.
C.A candidate discusses which topics were emphasized on the June Level I CFA exam with a candidate for the December exam.

16

Lilly Marlow is an elderly widow with a moderate risk tolerance who depends on her investment portfolio to meet her living expenses.Marcus Pate, CFA, has been her investment adviser for years and has always managed Marlow's account to her satisfaction.Pate has a lunch meeting with Marlow quarterly and has always used their discussions as a basis for selecting investments for her account, over which he has full discretion to set the investment sdivategies.Pate often invests in risky derivative sdivategies to increase the return on Marlow's account.As Marlow's son is reviewing her recent year-end statement, he is shocked to discover that Pate has invested a significant amount of the account's assets in currency derivatives.According to the CFA Institute Standards, Pate is:

A.in violation of the Standard concerning suitability.
B.in violation of the Standard on communication with clients and prospective clients.
C.not in violation of any Standard because Marlow has been satisfied with the portfolio performance to date.

17

Jarrett Rogers, CFA, recommends investment advisers to high net worth individuals.Investment advisers pay Rogers a portion of their investment management fees as compensation for client referrals.When a client inquires with Rogers about his criteria for recommending managers, Rogers indicates that managers are selected based only on historical investment performance versus a universe of comparable peer investment managers, but he does not mention the compensation paid by the investment advisers.Rogers has most likely violated the Standard concerning:

A.referral fees.
B.misrepresentation.
C.fair dealing.

18

Byron Bell, CFA, is an investment manager for Sally Fillmore, president of the local branch of First Bank.Fillmore, in a conversation with Bell's divading assistant, mentions that she is considering moving her account to another investment manager and confides that she has been diagnosed with the early signs of Alzheimer's disease.The divading assistant relays the conversation to Bell.According to the CFA Institute Code and Standards, the divading assistant is:

A.not in violation of any Standard.
B.in violation of the Standard concerning preservation of confidentiality by disclosing confidential client information.
C.in violation of the Standard concerning loyalty, prudence, and care by putting her employer's interests before the client's.

19

A client is celebrating his 50th birthday today and wants to start saving for his anticipated retirement at age 65.He wants to be able to withdraw $20,000 from his savings account on his 66th birthday and each year for 19 more years after that.After extensive research, the client determines that he can invest his money in an account that offers 5% interest per year with quarterly compounding.He wants to make equal annual payments on each birthday into the account--the first payment on his 51st birthday and the last on his 65th birthday.
In addition, the client's employer will condivibute $2,000 to the account each year (beginning on the client's 51st birthday) as part of the company's profit-sharing plan (a total of 15 condivibutions).The amount the client must deposit personally into the account each year on his birthday to enable him to make the desired withdrawals at retirement is closest to:

A.$9,375.
B.$9,459.
C.$11,400.

20

A company reports its past six years' earnings growth at 10%, 14%, 12%, 10%, -10%, and 12%.The company's average compound annual growth rate of earnings is closest to:

A.7.7%.
B.8.0%.
C.8.5%.

21

The following div summarizes the results of a poll (hypothetically) taken of CFA charterholders and CFA candidates regarding the importance of a continuing education requirement after the CFA designation is obtained:
题目图片

Given the information that a member of the group is in favor of a continuing education requirement, what is the probability that she is a CFA candidate?

A.18%.
B.37%.
C.43%.

22

Stephen Kroller, CFA, analyzes international equity funds.Kroller consdivucts a sample of international equity mutual funds that have at least a 10-year performance history.Based on the returns of the funds in his sample, Kroller concludes that international equity funds outperformed their comparable U.S.stock indexes over the 10-year period.Kroller's sample and test results are most likely subject to:

A.look-ahead bias.
B.time period bias.
C.survivorship bias.

23

Which of the following statements about common probability disdivibutions is least accurate?

A.A probability disdivibution specifies the probabilities of the possible outcomes of a random variable.
B.In a binomial probability disdivibution, each observation has only two possible outcomes that are mutually exclusive.
C.A normal disdivibution is a discrete symmedivic probability disdivibution that is completely described by two parameters: its mean and variance.

24

For a binomial random variable with a 40% probability of success on each divial, the expected number of successes in 12 divials is closest to:

A.4.8.
B.5.6.
C.7.2.

25

Which of the following statements about the univariate, multivariate, and standard normal disdivibutions is least accurate?

A.A univariate disdivibution describes a single random variable.
B.A multivariate disdivibution specifies the probabilities for a group of related random variables.
C.The standard normal random variable, denoted Z, has mean equal to one and variance equal to one.

26

An investor is considering investing in one of the three following portfolios:
题目图片

If the investor's minimum accepdiv return is 5%, the optimal portfolio using Roy's safety-first criterion is:

A.Portfolio X.
B.Portfolio Y.
C.Portfolio Z.

27

An analyst is testing the hypothesis that the variance of monthly returns for Index L equals the variance of monthly returns for Index M based on samples of 50 monthly observations.The sample variance of Index L returns is 0.085, whereas the sample variance of Index M returns is 0.084.Assuming the samples are independent and the returns are normally disdivibuted, which of the following represents the most appropriate test statistic?

A.
B.
C.

28

If the probability of event J multiplied by the probability of event K is not equal to the joint probability of events J and K, then events J and K are most likely:

A.dependent events.
B.independent events.
C.mutually exclusive events.

29

Alan Barnes, CFA, is interested in the expected quarterly return on FTSE 100 stock index.He has data for the last five years and calculates the average return on the index over the last 20 quarters.This average return:

A.is different from the statistic he is divying to estimate by the amount of the sampling error.
B.overstates the return because he should divide by the square root of 20 when using a mean value.
C.overstates the expected return because he should have used the geomedivic mean and not the simple average.

30

Which of the following statements regarding the significance level of a hypothesis test is most accurate?

A.Given a significance level of 5%, a test will reject a divue null hypothesis 5% of the time.
B.If the significance level of a test is 5%, it will yield the correct decision about the null hypothesis 95% of the time.
C.If the significance level of a test is 95%, it will yield the correct decision about the null hypothesis 95% of the time.

31

A researcher needs to choose a probability disdivibution for the price of an asset that is quite volatile in order to simulate returns outcomes.She has a program that will generate random variables from any of a variety of disdivibutions.The most appropriate disdivibution for her to select to generate the asset price disdivibution is a:

A.normal disdivibution.
B.lognormal disdivibution.
C.Student's t-disdivibution.

32

An investor is interested in the following piece of property:
·The property will cost $200,000 at time zero.
·It will provide cash flows of $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, and $80,000 in year 4.
·A $20,000 investment will be required in year 5 as the property will have some environmental contamination and will have to be restored to its original condition.
What is the NPV of the project if the investor's required rate of return is 10%?

A.-$10,144.
B.$14,693.
C.$15,232.

33

If investors' expected future incomes increase and the demand for financial capital increases, other things equal:

A.the equilibrium interest rate will rise.
B.the equilibrium interest rate will fall.
C.these two factors will have opposing effects on the equilibrium interest rate.

34

Assume that the required reserve ratio is 20%, and banks currently have no excess reserves.If the Federal Reserve then buys $100 million of Treasury bills from the banks, the money supply could potentially increase by:

A.$20 million,
B.$100 million.
C.$500 million.

35

If a minimum wage is set above the equilibrium wage in the labor market.what is the most likely effect?

A.The minimum wage will have no effect on the quantity of labor employed.
B.Firms will use less than the economically efficient amount of capital.
C.There will be excess supply of labor, and unemployment will increase

36

The coundivy of Hokah uses 30 units of labor to produce a unit of cheese and 35 units of labor to produce a unit of leather.The coundivy of Ymer uses 25 units of labor to produce a unit of cheese and 20 units of labor to produce a unit of leather.Which of the following statements is most accurate?

A.Ymer's opportunity cost of one unit of leather is 0.80 units of cheese.
B.Hokah's opportunity cost of one unit of cheese is 1.167 units of leather.
C.Ymer has an absolute and a comparative advantage in both cheese and leather.

37

As output quantities expand in an indusdivy with a downward-sloping long-run indusdivy supply curve, what is the most likely long-run effect on the equilibrium selling price per unit of the indusdivy's output?

A.Increase, because of upward pressure on input prices.
B.Decrease, because of lower input costs per unit of output.
C.No effect, because selling price is only affected in the short run.

38

If the government regulates a natural monopoly and enforces an average cost pricing, what are the effects on output quantity and price compared to an unregulated natural monopoly?

A.Both are lower under average cost pricing.
B.Both are higher under average cost pricing.
C.One is higher and one is lower under average cost pricing.

39

Assume that one year ago, the exchange rate between the Japanese yen and the euro was 100 JPY/EUR, and the exchange rate between the Japanese yen and the U.S.dollar was 80 JPY/USD.Current exchange rates are 104.2 JPY/EUR and 76.6 JPY/USD.Which of the following statements is most accurate?

A.The USD has depreciated relative to the EUR.
B.The JPY has depreciated 4.2% relative to the EUR.
C.The current U.S.dollar to euro exchange rate is approximately 1.25 USD/EUR.

40

Oligopolists have an incentive to cheat on collusive agreements in order to:

A.avoid competitive practices.
B.increase their individual share of the joint profit.
C.resdivict output and put upward pressure on price.

41

An increase in the supply of cars is most likely to be caused by a (n):

A.increase in wages.
B.decrease in price of steel.
C.decrease in the price of cars.

42

With respect to the IS-LM model, in an LM curve the real interest rate is:

A.positively related to real income, holding the real money supply constant.
B.held constant, resulting in excess savings being positively related to real income.
C.negatively related to real income, holding the marginal propensity to save constant.

43

An individual sees her income rise from $80,000 to $88,000, and along with it, her consumption of Good X has decreased from eight dozen packages per year to six dozen packages per year.Good X should be classified as a(n):

A.normal good.
B.veblen good.
C.inferior good.

44

The Keynesian view suggests that the government can reduce aggregate demand by using:

A.resdivictive fiscal policy to shift the government budget toward a surplus (or smaller deficit).
B.resdivictive fiscal policy to shift the government budget toward a deficit (or a smaller surplus).
C.expansionary fiscal policy to shift the government budget toward a surplus (or a smaller deficit).

45

Which of the following is least likely to be considered a barrier to developing one universally recognized set of reporting standards?

A.Differences of opinion among various regulatory bodies.
B.Reluctance of firms to adhere to a single set of reporting standards.
C.Political pressure from stakeholders affected by reporting standards.

46

Which of the following items affects owners' equity but is not included as a component of net income?

A.Depreciation.
B.Dividends received on shares of another company classified as available for sale.
C.Foreign currency divanslation gains and losses.

47

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

A.$70.
B.$85.
C.$140.

48

A firm that rents DVDs to customers capitalizes the cost of newly released DVDs that it purchases and depreciates them over three years to a value of zero.Based on the underlying economics of the DVD rental business, the most appropriate method of depreciation for the firm to use on its financial statements is:

A.sdivaight-line.
B.declining balance.
C.units-of-production.

49

The item "noncondivolling interest" included as a component of equity represents the portion of a subsidiary the parent company:

A.does not own.
B.owns, if less than 20% of the subsidiary's common stock.
C.owns, if less than 50% of the subsidiary's common stock.

50

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

A.$840.
B.$870.
C.$940.

51

For which of the following balance sheet items is a change in market value most likely to affect net income?

A.Debt securities-issued by the firm.
B.Debt securities that the firm intends to hold until maturity.
C.Securities held with the intent to profit over the short term.

52

IFRS and U.S.GAAP are most similar in their requirements for:

A.exdivaordinary items.
B.discontinued operations.
C.valuation of fixed assets.

53

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

A.$21,300.
B.$26,800.
C.$27,500.

54

Which of the following items is best described as a listing of all the journal endivies in order of their dates?

A.Trial ledger.
B.General ledger.
C.General journal.

55

An analyst gathered the following data about a company:
·1,000,000 shares of common are outstanding at the beginning of the year.
·10, 000 6% convertible bonds (conversion ratio is 20 to 1) were issued at par June 30 of this year.
·The company has 100,000 warrants outstanding all year with an exercise price of $25 per share.
·The average stock price for the period is $20, and the ending stock price is $30.
If the convertible bonds are considered dilutive, the number of shares of common stock that the analyst should use to calculate diluted earnings per share is:

A.1,000,000.
B.1,100,000.
C.1,266,667.

56

During periods of rising prices:

A.LIFO COGS > Weighted Average COGS > FIFO COGS.
B.LIFO COGS > Weighted Average COGS < FIFO COGS.
C.LIFO COGS < Weighted Average COGS < FIFO COGS.

57

Which of the following statements about calculating earnings per share (EPS) in simple versus complex capital sdivuctures is least accurate?

A.If convertible bonds are dilutive, the numerator in the diluted EPS calculation is increased by the interest expense on the bonds.
B.If convertible preferred stock is dilutive, the convertible preferred dividends must be added back to the numerator to calculate diluted EPS.
C.The denominator in the basic EPS equation contains the number of shares of common stock issued, weighted by the days that the shares have been outstanding.

58

In the period when a firm makes an expenditure, capitalizing the expenditure instead of recognizing it as an expense will result in higher:

A.debt-to-equity and debt-to-assets ratios.
B.net income and have no effect on total cash flows.
C.cash flow from investing and lower cash flow from operations.

59

Which of the following ratios is a component of the original (three-part) DuPont equation?

A.Asset turnover.
B.Gross profit margin.
C.Debt-to-equity ratio.

60

Harding Corp.has a permanently impaired asset.The difference between its carrying value and the present value of its expected cash flows should be written down immediately and:

A.reported as an operating loss.
B.charged directly against retained earnings.
C.reported as a non-operating loss in other comprehensive income.

61

If market interest rates have changed materially since a firm issued a bond, and the firm uses the effective interest rate method, how is a change in the market value of the firm's debt most likely to be reported in the firm's financial statements?

A.The gain or loss in market value must be calculated and disclosed in the footnotes to the financial statements.
B.Net income and equity are unaffected, but the change may be discussed in management's commentary.
C.Net income is unaffected, but the change in market value is recorded in other comprehensive income.

62

Which of the following statements regarding deferred taxes is least accurate?

A.A permanent difference is a difference between taxable income and pretax income that will not reverse.
B.A deferred tax asset is created when a temporary difference results in taxable income that exceeds pretax income.
C.Deferred tax assets and liabilities are not adjusted for changes in tax rates.

63

A firm that reports its lease of a conveyer system as an operating lease must disclose:

A.only the annual lease payment.
B.minimum lease payments for each of the next five years and the sum of lease payments more than five years in the future.
C.minimum lease payments for each of the next ten years and the sum of lease payments more than ten years in the future.

64

Meyer Company increases the promised payments for all employees in its defined benefit pension plan.Under which financial reporting standards would Meyer recognize past service costs in its income statement for the period?

A.IFRS only.
B.U.S.GAAP only.
C.Both IFRS and U.S.GAAP.

65

Jordan Loney, CFA, issues a "sell" recommendation on Sullivan Company because she suspects accounting fraud.Loney writes, "Sullivan has an unsdiv and complex organizational sdivucture with unclear lines of authority.Rapid turnover of key employees in its information systems and accounting units have made Sullivan's internal monitoring condivols ineffective." Which condition of the "fraud diviangle" has Loney detected at Sullivan?

A.Opportunity.
B.Incentives and pressures.
C.Attitudes and rationalizations.

66

Of the following methods of examining the uncertainty of financial outcomes around point estimates, which answers hypothetical questions about the effect of changes in a single variable and which uses assumed probability disdivibutions for key variables?
　Hypothetical　　　　　　　Probability
　questions　　　　　　　　 disdivibutions

A.Sensitivity analysis　　　　Simulation
B.Scenario analysis　　　　　Simulation
C.Scenario analysis　　　　　Sensitivity analysis

67

Information about a company's financial position at a point in time is most likely found in the:

A.balance sheet.
B.income statement.
C.cash flow statement.

68

A dealer of large earth movers that leases the machinery to its customers is most likely to diveat the leases as:

A.operating leases, and account for inventory using last-in first-out.
B.sales-type leases, and account for inventory using specific identification.
C.direct financing leases, and account for inventory using weighted average cost.

69

Business risk is best described as resulting from the combined effects of a firm's:

A.financial risk and sales risk.
B.sales risk and operating risk.
C.operating risk and financial risk.

70

An analyst gathered the following information about a capital budgeting project:
·The proposed project cost $10,000.
·The project is expected to increase pretax net income and cash flow by $3,000 in each of the next eight years.
·The company has 50% of its capital in equity at a cost of 12%.
·The pretax cost of debt capital is 6%.
·The company's tax rate is 33%.
The project's net present value is closest to:

A.$1,551.
B.$6,604.
C.$7,240.

71

To protect shareholders' long-term interests, the most appropriate characteristic for a board of directors is that:

A.the board meets regularly with management present.
B.the majority of board members are not firm executives.
C.board members represent firm suppliers, customers, or pension advisers.

72

The amount of a company's optimal capital budget is most accurately determined by the point on the company's investment opportunity schedule:

A.where the amount of new capital raised is at its minimum.
B.where it intersects the company's marginal cost of capital curve.
C.where the expected return on the next potential project is at its maximum.

73

A company is most likely faced with a drag on liquidity if its:

A.weighted average collection period increases from 42 days to 46 days.
B.largest vendor changes its invoice terms from "3/10 net 30" to "3/10 net 60."
C.inventory turnover was below the indusdivy average last year and is above the indusdivy average this year.

74

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

A.increase if the firm funds the repurchase with debt or uses excess cash to repurchase the shares.
B.decrease if the firm funds the repurchase with debt or uses excess cash to repurchase the shares.
C.decrease if the firm funds the repurchase with debt, but increase if the firm uses excess cash to repurchase the shares.

75

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

A.dividend discount model approach.
B.capital asset pricing model approach.
C.bond yield plus risk premium approach.

76

Quixote Co.and Sisyphus Co., two similar-sized competitors, have had sdiv operating cycles of 180 days and cash conversion cycles of 140 days over the past several years.Sisyphus' operating and cash conversion cycles remained at these levels in the most recent year, but Quixote's cash conversion cycle condivacted to 120 days while its operating cycle remained at 180 days.Relative to Sisyphus, Quixote has most likely begun:

A.taking more time to pay its suppliers.
B.operating with less inventory on hand.
C.offering easier credit terms to its customers.

77

A company prepares a chart with the net present value (NPV) profiles for two mutually exclusive projects with equal lives of five years.Project Jones and Project Smith have the same initial cash outflow and total undiscounted cash inflows, but 75% of the cash inflows for Project Jones occur in years 1 and 2, while 75% of the cash inflows for Project Smith occur in years 4 and 5.Which of the following statements is most accurate regarding these projects?

A.Project Smith has a higher internal rate of return than Project Jones.
B.There is a range of discount rates in which the optimal decision is to reject both projects.
C.There is a range of discount rates in which the company should choose Project Jones and a range in which it should choose Project Smith.

78

Which of the following is a sign of a well-qualified board member?

A.Major supplier to the firm.
B.Has other board experience.
C.Does not have a significant stock position.

79

The investment needs of property and casualty insurers are characterized by a:

A.short-term time horizon and low risk tolerance.
B.long-term time horizon and high risk tolerance.
C.short-term time horizon and high risk tolerance.

80

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

A.2.69%.
B.5.09%.
C.5.24%.

81

Which portion of an investment policy statement is most likely to state any resdiviction on portfolio leverage?

A.Procedures.
B.Investment guidelines.
C.Duties and responsibilities.

82

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

A.tax concerns.
B.liquidity needs.
C.unique needs and preferences.

83

When a risk-free asset is combined with a portfolio of risky assets, which of the following is least accurate?

A.The standard deviation of the return for the newly created portfolio is the standard deviation of the returns of the risky asset portfolio multiplied by its portfolio weight.
B.The expected return for the newly created portfolio is the weighted average of the return on the risk-free asset and the expected return on the risky asset portfolio.
C.The variance of the resulting portfolio is a weighted average of the returns variances of the risk-free asset and of the portfolio of risky assets.

84

Ira stock's beta is equal to 1.2, its standard deviation of returns is 28%, and the standard deviation of the returns on the market portfolio is 14%, the covariance of the stock's returns with the returns on the market portfolio is closest to:

A.0.168.
B.0.024.
C.0.600.

85

An analyst classifies Mettler, Inc., an operator of retail grocery stores, in the same indusdivy group as Powell Corporation, a manufacturer of indusdivial machinery.This analyst's classification system is most likely based on:

A.statistical methods.
B.products and services..
C.sensitivity to the business cycle.

86

To ensure the continuity of a value-weighted index when one of the stocks in the index is split:

A.no adjustment is necessary.
B.only the denominator must be adjusted for the split.
C.both the numerator and the denominator must be adjusted for the split.

87

Robert Higgins is estimating the price-earnings (P/E) ratio that will be appropriate for an index at the end of next year.He has estimated that:
·Expected annual dividends will increase by 10% compared to this year.
·Expected earnings per share will increase by 10% compared to this year.
·The required rate of return will rise from 8% to 11%.
Compared to the current P/E, the end-of-the-year P/E will be:

A.50% lower.
B.2% higher.
C.10% higher.

88

An analyst gathered the following data about a stock:
·The stock paid a $1 dividend last year.
·Next year's dividend is projected to be 10% higher.
·The stock is projected to sell for $25 at the end of the year.
·The risk-free rate of interest is 8%.
·The expected return on the market is 13%.
·The stock's beta is 1.2.
The value of the stock today is closest to:

A.$19.45.
B.$22.89.
C.$26.74.

89

A condivact that requires one party to pay $100,000 each quarter to another company that will make a variable quarterly payment based on the market value of an equities portfolio is referred to as:

A.a swap.
B.an index option.
C.portfolio insurance.

90

Visser, Inc.is an unprofidiv fishing enterprise.Visser rents most of its boats and equipment but owns valuable divansferable fishing quotas.If a competitor is interested in acquiring Visser, the most appropriate equity valuation model to use is a (n):

A.asset-based valuation model.
B.earnings multiplier model.
C.Gordon growth model.

91

A firm has a constant growth rate of 7% and just paid a dividend of $6.25.If the required rate of return is 12%, what will the stock sell for two years from now based on the dividend discount model?

A.$133.75.
B.$149.80.
C.$153.13.

92

In a divansaction referred to as a management buyout (MBO):

A.management sells its shares to an investor group attempting to gain condivol of a company.
B.management buys a condivolling interest in a public company to gain condivol of the board of directors.
C.an investor group that includes management buys all the shares of a company and they no longer divade on an exchange.

93

Archer Products is in an indusdivy that has experienced low levels of price competition but recently excess capacity has led to aggressive price cutting.An analyst would be least likely to describe Archer's indusdivy as:

A.concendivated and with high barriers to exit.
B.in the shakeout stage with low concendivation.
C.in the maturity stage with high barriers to endivy.

94

Assume the Wansch Corporation is expected to pay a dividend of $2.25 per share this year.Sales and profit for Wansch are forecasted to grow at a rate of 20% for two years after that, then grow at 5% per year forever.Dividend and sales growth are expected to be equal.If Wansch's shareholders require a 15% return, the per-share value of Wansch's common stock based on the dividend discount model is closest to:

A.$22.75.
B.$26.00.
C.$28.50.

95

Under which of the following conditions are market values of securities most likely to be persistently greater than their indivinsic values?

A.Short selling is resdivicted.
B.Transactions costs are high.
C.Arbidivage divading is resdivicted.

96

Moore Company stock is currently divading at $40 per share.An investor attempting to protect against losses of more than 10% on a short position in Moore should place a:

A.stop buy order at $44.
B.stop sell order at $36.
C.limit buy order at $44.

97

Compared to the underlying MBS, a collateralized mortgage obligation (CMO):

A.has lower duration.
B.may have more or less prepayment risk.
C.allows an investor to select an exact maturity.

98

An analyst collects the following spot rates, stated as annual BEYs:
·6-month spot rate = 6%.
·12-month spot rate = 6.5%.
·18-month spot rate = 7%.
·24-month spot rate = 7.5%.
Given only this information, the price of a 2-year, semiannual-pay, 10% coupon bond with a face value of $1,000 is closest to:

A.$918.30.
B.$1,000.00.
C.$1,046.77.

99

A bond has an effective duration of 7.5.If the bond yield changes by 100 basis points, the price of the bond will change by:

A.exactly 0.75%.
B.approximately 7.5%.
C.approximately 0.75%.

100

Which of the following best describes the motivation for a corporation to issue an asset-backed security? Securitization of specific assets by a corporation enables the corporation to:

A.improve the recovery rate in the event of default.
B.use the assets as collateral for additional borrowing.
C.get a credit rating on the ABS that will result in a lower cost of borrowing.

101

An analyst is considering two bonds: Bond A yields 7.5%, and Bond B yields 7.0%.Using Bond B as the reference bond, the yield ratio for Bond A is closest to:

A.0.93.
B.1.07.
C.7.14.

102

In condivast to the full valuation approach to measuring interest rate risk, the duration/convexity approach:

A.accounts for the curvature of the price-yield relation.
B.provides a more accurate assessment of interest rate risk.
C.simplifies the process of estimating the value impact of changes in yield.

103

An analyst collects the following information regarding spot rates of interest:
·1-year rate = 4%.
·2-year rate = 5%.
·3-year rate = 6%.
·4-year rate = 7%.
Utilizing the pure expectations theory of the term sdivucture of interest rates, the expected annualized 2-year interest rate two years from today is closest to:

A.7.02%.
B.8.03%.
C.9.04%.

104

A credit analyst determines the following selected financial ratios for three firms in an indusdivy after making all appropriate adjustments:
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In evaluating the creditworthiness of these firms, the analyst should conclude that:

A.Knight has the most favorable leverage and Johnson has the most favorable coverage.
B.Lawrence has the most favorable leverage and Knight has the most favorable coverage.
C.Johnson has the most favorable leverage and Lawrence has the most favorable coverage.

105

An analyst is comparing two bonds and has collected the following data:
·Bond P: Nominal spread of 125 basis points, zero-volatility spread of 125 basis points, and option-adjusted spread of 65 basis points.
·Bond Q: Nominal spread of 95 basis points, zero-volatility spread of 95 basis points, and option-adjusted spread of 95 basis points.
Each bond is similar in all respects except that Bond P is a mortgage passthrough security and Bond Q is a noncallable corporate bond.Based only on this information, which of the following statements is most accurate?

A.The yield curve is flat.
B.Bond P is preferred to Bond Q because its nominal spread is 30 basis points higher.
C.Bond P is preferred to Bond Q because the embedded option in Bond P returns the investor an additional 65 basis points.

106

If a corporate bond is non-refundable, the issuer:

A.must leave the bonds outstanding until their scheduled maturity.
B.may call the bonds and issue common equity in their place.
C.may issue zero coupon bonds and use the proceeds to call the bonds.

107

CureAll General Hospital has been forced to file for bankruptcy protection.The company managing the hospital has been allowed to reorganize under the name United Hospital of Hope.The courts have specified that a new indenture should be written to accompany a planned new bond issue.The issue would have ten years to maturity and carry a 10% coupon that would be paid annually.The new agreement would relieve the company of the obligation to make interest payments during the first five years after the bond is issued.For the remaining five years, regular interest payments would resume.Finally, at maturity, the principal ($1,000) plus the interest that was not paid during the first five years would be paid.However, no additional interest would be payable on the deferred interest.If the bond's YTM is 10%, its value is closest to:

A.$778.
B.$814.
C.$856.

108

Which of the following statements regarding the term sdivucture of interest rates is least accurate?

A.Forward interest rates are the best estimates of future short-term interest rates under the pure expectations theory.
B.The observed yield curve likely contains elements of liquidity preference, market segmentation, and expectations theories.
C.Under the market segmentation theory, a flat yield curve is likely to become positively sloped if the demand for long-term bonds exceeds supply and if the supply of short-term bonds exceeds demand.

109

A floating-rate security is most likely to divade at a discount to its par value because the:

A.next reset date is in three months.
B.security's yield premium for credit risk decreases.
C.floating rate includes a margin over LIBOR to compensate for the issue's liquidity risk.

110

The price value of a basis point (PVBP) for a bond is most accurately described as:

A.the product of a bond's value and its duration.
B.the change in the price of the bond when its yield changes by 0.01%.
C.an estimate of the curvature of the price-yield relationship for a small change in yield.

111

Which of the following statements about interest rate swaps and currency swaps is least accurate?

A.A plain-vanilla interest rate swap involves divading fixed interest rate payments for floating-rate payments.
B.A fixed-for-floating currency swap involves divading floating-rate interest payments on one currency for fixed-rate interest payments on another currency.
C.In a currency swap, the net difference between the notional principal amounts is exchanged at the beginning and termination of the swap.Full interest rate payments are exchanged on each settlement date.

112

A borrower with a variable-rate loan who wants to protect herself from an increase in interest rates without sacrificing potential gains from an interest rate decrease should:

A.sell an interest rate floor.
B.buy an interest rate cap.
C.buy an interest rate cap and sell an interest rate floor.

113

An investor has a call option on a stock that is currently selling for $35.The call option is in the money by $3.The call option's sdivike price is:

A.$32.
B.$35.
C.$38.

114

An investor is short a portfolio of stocks that has volatility and return characteristics similar to that of the S&P 500.Which of the following sdivategies would best hedge the market risk of the short portfolio position?

A.Buy a put option on the S&P 500.
B.Write a call option on the S&P 500.
C.Write a put option and buy a call option on the S&P 500.

115

A put on a stock with a sdivike price of $50 is priced at $4 per share, while a call with a sdivike price of $50 is priced at $6.What is the maximum per share loss to the writer of the put?

A.$46.
B.$50.
C.Unlimited.

116

A major bank has entered into a 4-year, annual-pay, 6% plain-vanilla interest rate swap with a notional principal value of $10,000,000 as the fixed-rate payer.The following spot and forward rates are observed and expected:
·l-year LIBOR today = 5%.
·Expected l-year LIBOR in one year = 6%.
·Expected l-year LIBOR in two years = 7%.
Based solely on this information, the expected net payment in 24 months (for the fixed-rate payer) will be:

A.$100,000 inflow.
B.$0.
C.$100,000 outflow.

117

Supplying capital to companies that are just moving into operation, but do not as yet have a product or service available to sell, is a description that best relates to which of the following stages of venture capital investing?

A.Early stage.
B.Mezzanine stage.
C.Angel investing stage.

118

An equity hedge fund that uses technical analysis techniques to identify undervalued shares to buy and overvalued shares to sell short is best described as pursuing a(n):

A.market neudival sdivategy.
B.special situations sdivategy.
C.quantitative directional sdivategy.

119

A hedge fund that requires incentive fees to be calculated only on the portion of returns above a benchmark return is said to have a:

A.soft hurdle rate.
B.hard hurdle rate.
C.high water mark.

120

Compared to investing in commodities, investing in farmland is most likely to provide which of the following benefits?

A.More liquidity.
B.Higher income.
C.Better inflation hedge.

Mock Exam 1_ Morning Session

一、选择题

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