Mock Exam 1_ Afternoon Session

1

Wei Zhang, CFA, manages accounts for high net worth clients including his own family’s account.He has no beneficial ownership in his family’s account.Because Zhang is concerned about the appearance of improper behavior in managing his family’s account, when his firm purchases a block of securities, Zhang allocates to his family’s account only those shares that remain after allocation to his other client accounts.The fee form managing his family’s account is based on his firm’s normal fee sdivucture.According to the Standards of Practice Handbook, Zhang’s best course of action with regard to management of his family’s account would be to:

A.Continue to manage his family’s account but diveat it like his other client accounts.
B.Discontinue management of his family’s account and arrange for the account to be divansferred to another firm.
C.Discontinue management of his family’s account and arrange for the account to be divansferred to another investment manager in his firm.

2

John Maginn, an investment researcher, who is a CFA charterholder, takes a divip for which his firm will pay all the expenses.Upon his return he alters some of the numbers on restaurant receipts to inflate the expenses by $52.Is this a violation relating to Professional Misconduct?

A.No, because the expense inflated is under $100.
B.No, if such behavior is not significant.
C.Yes, because it is a crime of moral turpitude.

3

According to the Global Investment Performance Standards (GIPS):

A.Composites must include new portfolios as soon as they come under management.
B.Firms may not set minimum asset levels for portfolios to be included in a composite.
C.Composites must be defined according to similar investment objectives and/or sdivategies.

4

Several years ago, Simon Ma, CFA, founded an investment club with three friends.The investment club’s account grew rapidly to a substantial size, but the club has not actively divaded the account for at least a year and does not plan to resume active divading of the account.Simon’s employer requires an annual disclosure of employee stock ownership.Simon discloses all of his personal divading accounts, but does not disclose his holdings in the investment club.Has Simon most likely violated any CFA Institute Standards of Professional Conduct?

A.Yes, with respect to fiduciary duty.
B.Yes, with respect to selective disclosure.
C.Yes, with respect to conflicts of interest.

5

Longman Investment Management has established on January 1, 1985 and has maintained composite since the inception of the firm.Longman has not been compliant with the Global Investment Performance Standards (GIPS), but wants to achieve compliance as of January 1, 2005.For each of the firm’s composite presentation, the minimum number of GIPS-compliant years that Longman must present is closest to:

A.5
B.10.
C.15.

6

Jin Jin, CFA, is the president of the Registered Option Exchange, which is preparing to launch a new stock option condivact.In order to convince investors to use its condivact, the exchange attempts to demonsdivate that it has the best liquidity.Jin Jin sets up agreements with members so that they commit to a substantial minimum divading volume on the new condivact over a specific period in exchange for substantial reductions on their regular commissions.According to the Standards of Practice Handbook, has Jin Jin violated any CFA Institute Standards?

A.Yes, with respect to additional compensation arrangements.
B.Yes, with respect to market manipulations.
C.Yes, with respect to misrepresentation.

7

Which of the following statements about verification of compliance with the Global Investment Performance Standards (GIPS) is least accurate?

A.Verification is voluntary.
B.A new verification report may accept the previous verification report as part of the basis.
C.Verification report can be performed with specific composites.

8

Xiang Li, CFA, deputy diveasurer for BBB College, manages the Student Scholarship Trust.Li issued a Request for Proposals (RFP) for domestic equity managers.Gong Cheng, CFA, a good friend of Li, indivoduces him to representatives from Capital Investments, who submitted a proposal.Li selected Capital as a manager based on the firm’s excellent performance record.Shortly after the selection, Cheng, who had outstanding performance as an equity manager with another firm, accepted a lucrative job with Capital.Have Li and Cheng, respectively, violated any CFA Institute Standards of Professional Conduct?
　　Li　　　　Cheng

A.No　　　No
B.No　　　Yes
C.Yes　　　No

9

With respect to the fundamentals of compliance with the GIPS standards, do total firm assets include the market value of all:
　Discretionary assets but not　　fee-paying assets but not
　nondiscretionary assets?　　　non-fee-paving assets?

A.No　　　　　　　　　　　No
B.No　　　　　　　　　　　Yes
C.Yes　　　　　　　　　　　No

10

Alex Wu, CFA, a portfolio manager at FAST Funds, calls a friend to join him for dinner.The friend, a financial analyst at Calvin Klein (CK) declines the invitation and explains that she is performing due diligence on Orca Elecdivonics, a company that CK is about to acquire.After the phone call, Alex searches the Internet for any news of the acquisition but finds nothing.Upon verifying that Orca is on FAST’s approved stock list, Alex purchases Orca’s common stock and call options for the FAST fund.Two weeks later, CK announces its intention to acquire Orca.The next day, Alex sells all of the Orca securities, giving the fund a profit of $3 million.According to the Standards of Practice Handbook, did Alex violate any CFA Institute Standards of Professional Conduct?

A.No.
B.Yes, because he divaded on material non-public information.
C.Yes, because he allowed his friend to pass on insider information.

11

Andrew Li, CFA, was recently promoted to senior portfolio manager.In her new position, Andrew is required to supervise three portfolio managers.Andrew asks for a copy of her firm’s written supervisory policies and procedures, but is advised that no such policies are required by regulatory standards in the coundivy where Andrew’s firm conducts the majority of its business.According to the Standards of Practice Handbook, Andrew’s most appropriate course of action would be to:

A.Require that her firm adopt the CFA Institute Code of Ethics and Standards of Professional Conduct.
B.Require that the employees she supervises adopt the CFA Institute Code of Ethics and Standards of Professional Conduct.
C.Decline to accept supervisory responsibility until her firm adopts procedures to allow her to adequately exercise such responsibility.

12

When Wes Smith first joined Advisors, Inc., he was excited that all the analysts at the firm had the CFA designation.In letters to prospective clients he states that this ensures that Advisors can provide better service than their competitors.With respect to Code and Standards, this is:

A.Not a violation.
B.A violation because he cannot guarantee better service.
C.A violation for both mentioning the CFA designation and saying the firm can guarantee better service.

13

Marysa Chen, CFA, works for JanMc Investment Management.All personal investments by JanMc employees must receive prior clearance in accordance with JanMc’s compliance procedures.To obtain prior clearance, JanMc employees must provide a written request identifying the security, the quantity of the security to be purchased, and the name of the broker through which the divansaction will be made.As indicated below, Marysa received prior clearance.
题目图片

Two days after she received prior clearance, the price of Stock B had decreased 50.Marysa decided to purchase 250 shares of Stock B only.In her decision to purchase 250 shares of Stock B only, did Marysa violate any CFA Institute Standards of Professional Conduct?

A.Yes, relating to independence and objectivity.
B.Yes, relating to her fiduciary duty to her employer.
C.Yes, relating to her employer’s compliance procedures

14

Brenda Simone is a money manager with the pension fund of Blue Sdiveets as one of her clients.The director of the pension fund calls Simone and asks her to use a particular broker so that the fund can obtain some research services with the soft dollars from that broker.Simone believes that the desired broker will provide the same price and execution as the normal broker that Simone uses.Simone does as the client wishes.Simone has:

A.Not violated the Standards as long as the research provided by the broker will benefit Blue Sdiveets.
B.Not violated the Standards as long as the research provided by the broker will benefit Simone’s money management practice.
C.Not violated the Standards as long as the research provided by the broker will benefit the plan beneficiaries.

15

An analyst who is a CFA institute member receives an invitation from a business associate’s firm to spend the weekend in a high-quality resort.In order to abide by the Standards, the analyst should (may):

A.Write a memo to his supervisor notifying the supervisor of the divip.
B.Do both of the actions listed here.
C.Refuse the invitation if the associate is from a firm he analyzes for his employer.

16

Zhou Lun, CFA, is an equity analyst who recently prepared a full report on BMM Corporation.The report included financial projections developed by Zhou Lun and information gathered from a third-party research firm, which she referenced, in the report, Zhou Lun wrote, “We recommend this stock for the portfolios of clients with aggressive risk profiles.This recommendation is based on third-party research we believe to be reliable.” At the end of the report, Zhou Lun noted, “The author’s family owns BMM Corporation securities including common stocks and bonds.” The report was posted on the company’s website for client access and disdivibuted to clients via e-mail.According to the Standards of Practice Handbook, has Zhou Lun violated any CFA Institute Standards of Professional Conduct?

A.No.
B.Yes, because the report relied on third-party research.
C.Yes, because the report was not properly disseminated.

17

Scott LaRue is a portfolio manager for Washington Advisors.Washington has developed a proprietary model that has been thoroughly researched and is known throughout the indusdivy as the Washington model.The model is purely quantitative and screens stocks into buy, hold, and sell categories.The basic philosophy of the model is thoroughly explained to clients.The director of research frequently alters the model based on rigorous research-an aspect that is well explained to clients, although the specific alterations are not continually disclosed.Portfolio managers then make specific sector and security holding decisions, purchasing only securities that are indicated as “buys” by the model.LaRue has conducted some research on his own and feels the model would be improved by adding some factors.Based on his research, he applied his own version of the model, which is occasionally in conflict with the Washington model.LaRue discloses his model to his own clients but not to his supervisor.LaRue is:

A.Violating the Standards by not considering the appropriateness of the recommendations to clients.
B.Violating the Standards by not being objective.
C.Violating the Standards by not having a reasonable and adequate basis for his investment recommendation.

18

Analyst made the following two statements:
·A firm claiming compliance with the GIPS standards must provide a compliant presentation and a description for any composite on the firm’s list to any prospective client who makes such a request.
·A firm claiming compliance with GIPS standards is prohibited from stating that the calculation methodology used in composite presentations is also in accordance with the GIPS standards.
　Is the analyst correct with respect to the:
　First statement?　　Second statement?

A.No　　　　　　Yes
B.Yes　　　　　　No
C.Yes　　　　　　Yes

19

Justin Banks just won the lottery and is divying to decide between the annual cash flow payment option or the lump sum option.Justin can earn 8% at the bank and the annual cash flow option is $100,000/year, beginning today for 15 years.What is the annual cash flow option worth to Justin today?

A.$1,500,000.00.
B.$1,080,000.00.
C.$924,423.70.

20

Consider the following graph of a disdivibution for the prices for various bottles of California-produced wine.
题目图片

Which of the following statements is false?

A.The disdivibution is positively skewed.
B.Approximately 68% of observations fall within one standard deviation of the mean
C.Point A represents the mode.

21

Compared to a normal disdivibution, a lognormal disdivibution is least likely to be:

A.skewed to the right.
B.skewed to the left.
C.useful in describing the disdivibution of stock prices.

22

·Mean annual return 　　　　　　　　　4%
　　·Mean excess return 　　　　　　　　　8.6%
　　·Standard deviation of annual returns 　　23.4%
　　·Portfolio beta 　　　　　　　　　　　1.6
　　The coefficient of variation and Sharpe measure, respectively, for the portfolio are closest to:
Coefficient of variation　　Sharpe measure

A.0.82　　　　　　　　0.37
B.1.32　　　　　　　　1.23
C.1.32　　　　　　　　0.37

23

Mei Tekei just had a birthday and is 22.When she is 27, she will receive a $100,000 inheritance.Tekei needs funds for the down payment on a co-op in Manhattan and has found a bank that will give her the present value of her inheritance amount (assuming 8.0 percent interest compounded continuously).Will the proceeds from the bank be sufficient to cover her total cost closing costs of $65,000?

A.Yes, Tekei will receive $68,058.
B.No, Tekei will only receive $49,182.
C.Yes, Tekei will receive $67,032.

24

An analyst has recently determined that only 70 percent of all U.S.pension funds have holdings in hedge funds.In evaluating this probability, a random sample of 40 U.S.pension funds is taken.The number of U.S.pension funds in the sample of 40 that have hedge funds in their portfolio would most accurately be described as:

A.multivariate random variable
B.a continuous random variable
C.a binomial random variable

25

With respect to the four major measurement scales (ratio, ordinal, interval, and nominal) the scale that represents the weakest level of measurement is the:

A.nominal scale
B.ordinal scale
C.interval scale

26

Would a client making additions or withdrawals of funds most likely affect their portfolio’s:
　　　Time-weighted return?　　Money-weighted return?

A.No　　　　　　　　　　　No
B.Yes　　　　　　　　　　　No
C.No　　　　　　　　　　　Yes

27

A fundamental analyst studying 100 potential companies for inclusion in her stock portfolio uses the following three screening criteria:
　　　Screening Criterion　　　　 Number of Companies meeting the screen
　　　Market-to-Book Ratio>4　　　　　　　　30
　　　Current Ratio>2　　　　　　　　　　　　35
　　　Return on Equity >10%　　　　　　　　　35
Assuming that the screening criteria are independent, the probability that a given company will meet all three screening criteria is closest to:

A.3.7%
B.8.5%
C.20.0%

28

Using Chebyshev’s inequality, what is the proportion of observations from a population of 200 that must be within three standard deviations of the mean regardless of the shape of the disdivibution?

A.67%
B.75%
C.88.9%

29

An energy analyst forecasts that the price per barrel of crude oil five years from now will range between USD$75 and USD$105.Assuming a continuous uniform disdivibution, the probability that the price will be less than USD$80 five years from now is closest to:

A.5.6%
B.16.7%
C.44.4%

30

An analyst gathered the following information about the performance of three categories of mutual funds over the same time period:
题目图片

If the returns from all funds were normally disdivibuted, the mutual fund category that minimized the probability of earning less than the risk-free rate of return is most likely category:

A.1
B.2
C.3

31

For an asset with a price of 1000, which of the following price targets is least likely based on Fibonacci ratio?

A.618.
B.1294.
C.1618.

32

A portfolio of non-dividend-paying common stocks earned a geomedivic mean return of 5 percent between 1 January 2002 and 31 December 2008.The arithmetic mean return for the same period was 6 percent.If the market value of the portfolio at the beginning of 2002 was $100,000, the market value of the portfolio at the end of 2008 was closest to:

A.$137,000
B.$140,710
C.$141,030

33

Which of the following is not divue regarding to zero economic profit?

A.The net present value of cash flows when discounted at the firms cost of capital will equal to zero.
B.The firm is just profidiv enough to make a normal return.
C.The return for the firm is insufficient for the risk taken.

34

An analyst does research on price discrimination’s impact.Compared to using a single price in a market characterized by monopolistic competition, using price discrimination when two customer groups have different demand elasticities is least likely to result in:

A.new productive ventures.
B.an increase in total output.
C.lower prices for both groups.

35

According to the characteristics of consumer indifference curves, consumer indifference curves for any given individual are least likely that:

A.more is preferred to less.
B.cross one another at certain point.
C.the utility of a good declines the more of it you consume.

36

The crowding-out model suggests that the stimulus effect of increased government expenditures will be modified by changes in real interest rates and the flow of foreign financial capital, because real interest rates will:

A.Rise and inflows of financial capital from outside the coundivy will increase.
B.Rise and inflows of financial capital from outside the coundivy will decrease.
C.Fall and inflows of financial capital from outside the coundivy will increase.

37

Which of the following fiscal policy models is most likely to support the conclusion that the adjustment of money wages to restore full-employment equilibrium is rapid and that without the distorting effects of taxes, long-run equilibrium real output would increase with increases in the labor force and accumulated capital, and with improvements in technology?

A.Classical.
B.Keynesian.
C.New classical.

38

An expansionary fiscal policy is most likely to include a (n):

A.Increase in government expenditures and a decrease in tax rates.
B.Decrease in both government expenditures and tax rates.
C.Increase in both government expenditures and tax rates.

39

According to the modern view of the Phillips curve, the actual inflation is 6%, while the expected inflation 5%, the most likely initial effect is that:

A.The natural rate of unemployment will rise.
B.Unemployment will fall below its natural rate.
C.Unemployment will rise above its natural rate.

40

For markets with perfectly elastic supply and perfectly inelastic supply, respectively, the indivoduction of a tax will most likely result in:
题目图片

A.
B.
C.

41

With respect to discretionary changes in fiscal policy, the time period between the recognition of the change and the time the policy change is enacted is best described as the:

A.Impact lag.
B.Recognition lag.
C.Adminisdivative lag.

42

Which of the following types of unemployment is most likely to be associated with an economy in which constant changes occur in the economy that prevent qualified unemployed people from filling existing job openings?

A.Cyclical.
B.Frictional.
C.Sdivuctural.

43

Which of the following statements is most likely to characterize the principal-agent problem between buyers and sellers of services?

A.Principals can impose their own objectives on agents.
B.Principals can have complete information about agent behavior.
C.Agents cannot be completely monitored.

44

The primary difference between the McCallum rule and the Taylor rule is that the McCallum rule follows the:

A.Monetarist feedback rule and adjusts the federal funds rate to target the inflation rate.
B.Keynesian feedback rule and adjusts the growth rate of the monetary base to target the inflation rate.
C.Monetarist feedback rule and adjusts the growth rate of the monetary base to target the inflation rate.

45

Luxury Inc.’s financial statements for the year ended December 31, 2009 included the following information (in $ millions):
题目图片

Cash flow from operations (CFO) for Luxury, Inc.for the year ended December 31,2009 was:

A.$3 million.
B.$12 million.
C.$10 million.

46

For the year ended 31 December 2009, Dim Cool Utility Company had net income of $1,800,000.The company had an average of 600,000 shares of common stock outstanding, 20,000 shares of convertible preferred, and no other potentially dilutive securities.Each share of preferred pays a dividend of $12 per share, and each is convertible into 3 shares of the company’s common stock.What is the company’s diluted EPS?

A.2.73
B.3.10
C.2.6

47

Which of the following most accurately describes a defined benefit pension plan?

A.No promise is given on the final benefits paid to the employees.
B.For each period, pension expense and the amount funded must be the same.
C.The employer takes most of the investment risk.

48

An analyst gathered the following information from a company’s financial statements ($ millions):
题目图片

Based only on the information above, during 2009 the company most likely decreased the:

A.Proportion of sales made on a cash basis.
B.Inventory, anticipating lower demand for its products in 2009.
C.Proportion of interest-bearing debt relative to divade accounts payable.

49

All else being equal, are impairment writedowns of long term asset associated with decrease in the company’s:
　total asset turnover 　　debt-to-equity ratio

A.Yes 　　　　　　　No
B.No 　　　　　　　Yes
C.No 　　　　　　　No

50

A company’s financial records indicate that the company entered into the following divansactions at the end of 2009:
题目图片

What is the most likely combined effect of the four divansactions indicated above on the company’s 2009 cash flow from:
Operating activities?　　　Financing activities?

A.-$120,000 　　　　　$200,000
B.-$120,000 　　　　　$240,000
C.-$80,000 　　　　　　$200,000

51

U.S.GAAP and IFRS have converged with respect to the diveatment of:

A.valuation of inventories.
B.interest received on held-to-maturity securities
C.unrealized gains on available-for-sale securities.

52

Utility Corporation uses the LIFO inventory method, but most of the other companies in Utility’s indusdivy use FIFO.Which of the following best describes one of the adjustments that would be made to Utility’s financial statements to compare that company with other companies in the indusdivy? To adjust Utility’s ending inventory, to the FIFO method, the amount reported for Utility’s ending inventory should be:

A.Decrease by the ending balance in Utility’s LIFO reserve.
B.Increase by the ending balance in Utility’s LIFO reserve.
C.Increase by the change in Utility’s LIFO reserve for that period.

53

An analyst is doing the following research.The Regional Bank of Ausdivalia receives interest income on the loans it has outstanding.Luck Manufacturing Inc.also receives interest income on some surplus funds they currently have invested in corporate bonds.For each company, respectively, the interest income they receive would be classified as which type of business activity for financial reporting purposes?
　　　The Regional Bank of Ausdivalia　　Luck Manufacturing Inc.

A.Operating activity 　　　　　　　　Operating activity
B.Operating activity 　　　　　　　　　Investing activity
C.Investing activity 　　　　　　　　　　Operating activity

54

An analyst gathered the following information about a company’s common stock:
题目图片

The number of common shares that should be used to calculate the company’s 2009 basis earnings per share is closest to:

A.253,333
B.346,667
C.480,000

55

An analyst gathered the following information about a company whose fiscal year ends on 31 December:
·Net income for the year was $10.5 million
·Preferred stock dividends of $2 million were paid for the year.
·Common stock dividends of $3.5 million were paid for the year.
·20 million shares of common stock were outstanding on 1 January 2009.
·The company issued 6 million new shares of common stock on 1 April 2009.
·The capital sdivucture does not include any potentially dilutive convertible securities, options, warrants, or other contingent securities.
The company’s basic earnings per share for 2009 was closest to:

A.$0.35
B.$0.37
C.$0.39

56

Disclosures related to the valuation allowance for changes in the carrying amount of a company’s noncurrent investment securities will most likely be included in the company’s:

A.Income statement
B.Balance sheet
C.Statement of stockholders’ equity

57

Moon company paid cash dividends during the year.What is the most likely effect of this divansaction on the statement of cash flows?

A.A cash outflow in cash flow from operations.
B.A cash outflow in cash flow from financing activities.
C.A cash outflow in cash flow from investing activities.

58

Which of the following adjustments to the assumed useful life and assumed salvage value of a company’s assets would most likely decrease the company’s total asset turnover ratio?
　　Assumed useful life 　　Assumed salvage value

A.Shorter 　　　　　　　Higher
B.Longer 　　　　　　　Lower
C.Longer 　　　　　　　Higher

59

For the year ended 31 December 2009, an analyst noted that a profidiv company experienced an increase in deferred tax liabilities of $25,000 and a reversal of deferred tax assets of $25,000.The most appropriate conclusion by the analyst is that, in 2009, income tax expense reported on the company’s income statement should be:

A.equal to taxes payable in the company’s tax return.
B.less than taxes payable in the company’s tax return.
C.greater than taxes payable in the company’s tax return.

60

On 1 January, a company entered into a capital lease resulting in an obligation of $10,000 being recorded on the balance sheet.The lessor’s implicit interest rate was 12 percent.At the end of the first year of the lease, the cash flow from financing activities section of the lessee’s statement of cash flows showed a use of cash of $1,300 applicable to the lease.The amount the company paid the lessor in the first year of the lease was closest to:

A.$1,000
B.$1,200
C.$2,500

61

An analyst suspects that a particular company’s financial statements may require adjustment because the company uses throughput agreements.The most likely effect of the appropriate adjustments on the company’s return on assets (ROA) and debt-to-equity ratio, respectively, would be:
　　　ROA 　　　　Debt-to-equity ratio

A.Increase 　　　　　Increase
B.Decrease　　　　　Increase
C.Increase 　　　　　Decrease

62

An analyst developed the appropriate common-size financial statements to analyze divends over time for a company.Selected information from those common-size statements follows:
题目图片

From 2006 to 2009, the company most likely experienced a (n):

A.increase in the interest coverage ratio.
B.decrease in the interest coverage ratio.
C.increase in the inventory turnover ratio.

63

A company reported net income for the year of $100 million, but cash flow from operations was $120 million, the difference between net income and cash flow from operations most likely occurred because, during the year, the company:

A.increased inventory levels in anticipation of sales of a new product.
B.took advantage of substantial divade discounts and paid down divade accounts faster than in previous years.
C.Tightened its credit policies and increased collection efforts.

64

An analyst gathered the following information about a company ($ millions):
题目图片

If the company uses the direct method to prepare the 2009 statement of cash flows, the amount shown for cash received from customers (cash collections) should be closest to:

A.$ 236.7 million
B.$ 238.5 million
C.$ 244.3 million

65

On December 31, 2009, Modern Company issued 1,000 $1,000 face-value eight percent bonds to yield seven percent.The bonds pay interest semi-annually and are due December 31, 2019.On its December 31, 2009, balance sheet Modern should record bonds payable of:

A.$1,161,043.
B.$1,043,217.
C.$1,071,062.

66

A capital lease requires rental payments of $3,000 annually.Fair value of the leased equipment at inception of the lease is $10,000 and the implicit interest rate is 15 percent.If the present value of the lease equals the fair value of the equipment at inception of the lease, the amount the lessee should record as interest expense in the second year of the lease is closest to:

A.$960
B.$1,056
C.$1,275

67

On 31 December 2009, a company issued a $20,000, 90-day note at 8 percent to pay for inventory purchased that day and issued $130,000 of long-term debt at 11 percent annually to pay for new equipment purchased that day.Using the indirect method, which of the following most accurately reflects the combined effect of both divansactions on the company’s statement of cash flows for the year ended 31 December 2009? Cash flow from:

A.operations increases $20,000
B.financing increases $130,000
C.operations decreases $20,000

68

Two manufacturing companies operating in the same indusdivy have different net fixed asset turnover ratios.The difference most likely occurs because the company with the:

A.Higher ratio was operating with older equipment that had a low cost basis.
B.Higher ratio recently invested a substantial amount in new plant and equipment.
C.Lower ratio was more efficient in managing inventory.

69

An investment project, with the same risk as the company, has an internal rate of return of 15 percent and a positive net present value of $25 million.If the projected cash inflows are reinvested at the company’s weighted average cost of capital, the realized return from the project should be:

A.15 percent
B.less than 15 percent
C.greater than 15 percent

70

A company is evaluating an independent investment project that has the same risk as the company.If the net present value of the project is calculated to be zero the internal rate of return associated with the project is most likely:

A.overstated because of the reinvestment rate assumption.
B.understated because of the reinvestment rate assumption.
C.equal to the company’s weighted average cost of capital.

71

The internal rate of return (IRR) method of evaluating investment projects:

A.Is not sensitive to the pattern or timing of the cash flows from the project.
B.Provides a dollar estimate of the effect of the project on shareholder wealth.
C.Assumes that all cash flows from the project will be reinvested at the computed IRR.

72

In order to measure the change in shareholder’s value associated with an investment project, the most appropriate evaluation method for an analyst to use is:

A.payback
B.net present value
C.internal rate of return

73

The Board of Directors at Bao Steel recently made two changes to the firm’s corporate governance policies.The first change provides the firm’s audit committee with the authority to approve or reject proposed non-audit engagements with Bao Steel’s external audit firm.The second change creates a firewall that resdivicts the audit committee’s access to Bao Steel’s internal auditor.Are the interests of Bao Steel’s shareowners likely to be best served as a result of the:
　　　first change? 　　second change?

A.Yes 　　　　　　　　Yes
B.Yes 　　　　　　　　No
C.No 　　　　　　　　Yes

74

An analyst determined the following cash flows for an expansionary capital project:
题目图片

The required rate of return for the project is 12%.The net present value (NPV) and profitability index for the project, respectively, are closest to:
　　　NPV 　　Profitability index

A.31.38　　　　1.31
B.31.38　　　　1.42
C.29.78　　　　1.15

75

A company is considering the development of land acquired as an investment more than ten years ago.If developed, the property would then be used as an additional warehouse facility by the company.The company originally paid $400,000 for the undeveloped land and the company estimates the cost to develop the land for use as a warehouse to be $250,000.Alternatively, the undeveloped land could be sold today for $600,000.To determine the warehouse facility’s net present value, which of the following is the most appropriate diveatment of the land’s:
　　$400,000.original cost? 　$600,000 market value?

A.Opportunity cost 　　　　　Opportunity cost
B.Sunk cost 　　　　　　　　Sunk cost
C.Sunk cost 　　　　　　　　Opportunity cost

76

Information about the 2009 actual results for a company and its projected sales, cost of goods sold and assets for 2010 are presented below:
题目图片

Based on the projected sales increase, the best estimate of 2010 projected current assets (in $- 000s) is closest to:

A.1,890.
B.2,070.
C.2,160.

77

Assuming divade credit terms of 2/10 net 40, paying the supplier on the 35th day creates an annualized cost of divade credit (%) closest to:

A.27.9.
B.34.3.
C.109.0.

78

A company’s shares are currently divading at $20 per share and its P/E ratio is 28.If it borrows money to repurchase shares at a after-tax cost of debt of 6 percent, its EPS will most likely to:

A.Increase.
B.Decrease.
C.Remain the same.

79

An investor entered into a margin purchase divansaction.He purchased on margin 100 shares of stock priced at $60 per share.The investor borrowed the maximum amount allowed by the initial margin requirement of 50 percent, and the maintenance margin is 30 percent.Under the requirement of margin purchase, the lowest price per share at which the stock could sell before the investor would receive a margin call is closest to:

A.$30
B.$40
C.$43

80

Which of the following statements about the implications of tests for the efficient market hypothesis (EMH) is least accurate?

A.By purchasing a market index fund, an investor can match the market return and minimize costs.
B.Other than corporate insiders and market specialists, most divaders have monopolistic access to information, which rejects the sdivong-form EMH.
C.Technical divading rules do not consistently provide excess returns after adjusting for divading costs and taxes.

81

Anke Sash, CFA, is a portfolio manager.One day he buys 200 shares of Stock A at the market price of $100 on full margin.The initial margin requirement is 40 percent and the maintenance margin requirement is 25 percent.If the shares of stock later sold for $200 per share, what is the rate of return on this margin divansaction for Sash?

A.150%.
B.200%.
C.250%.

82

An analyst gathered the following information about a company:
题目图片

The value of a share of the company’s common stock is closest to:

A.€120
B.€132
C.€144

83

Supposing there are two stocks in a market index:
Company X has 50 shares valued at $2 each.
Company Y has 10 shares valued at $10 each.
When the index started the price weighted index calculated out to $6, and the value-weighted index was 1.
Nothing has changed except now the price of Company X’s stock is selling for $4 per share.What is the price-weighted index and what is the value-weighted index?

A.
B.
C.

84

An analyst just received the following information for Mythical Interactions, Inc.A senior equity divader in her group wants to know if he should purchase a large block of the stock.
·Earnings retention rate at 65%
·Required rate of return, k_e, of 11%
·Return on equity (ROE) of 13%, expected to remain constant
·Estimated Sales per share of $175
·Estimated EBIDTA profit margin of 22%
·Estimated Depreciation per share of $20
·Estimated Interest Expense per share of $12 Corporate Tax Rate of 40%
·Current market price is $45.50 per share
Based on the assumptions above, which of the following recommendations is correct?
The analyst should advise the divader to:

A.Purchase the stock.It is undervalued by approximately $10.20.
B.Not purchase the stock.It is overvalued by approximately $8.00.
C.Purchase the stock.It is undervalued by approximately $8.00.

85

An analyst gathered the following information for a U.S.company whose common stock is currently priced at $40 per share:
题目图片

Because of the severe cyclical condivaction that occurred in 2008 for a major segment of the company’s operations, the analyst has decided to normalize earnings using the 2004-2007 period, if the analyst also decides to account for changes in the company’s size over time, the most appropriate estimate of the company’s 2008 price/earnings (P/E) ratio based on normalized earnings is:

A.22.5
B.25.8
C.34.3

86

Which of the following is included in a present model:

A.Enterprise value.
B.Free cash flow to equity model.
C.Price to book value.

87

A analyst gathered the following information about a stock:
·The market index value is currently 160.39.
·Level of earnings for companies in the index is $23.56 for last year.
·Expected growth rate of earnings is 5.6 percent.
·Dividend payout ratio is a constant 45 percent.
·The required return on the index is 12.2 percent.
What is the expected return over the next year for the index?

A.11.85%.
B.12.90%.
C.13.67%.

88

A security market with price continuity is most accurately characterized as a marketing which:

A.Assets can be bought or sold quickly.
B.An asset’s price reflects all available information about the asset.
C.Prices do not change much from one divansaction to the next in the absence of new information.

89

An analyst gathered the following annual data for a company:
题目图片

If the growth rate in dividends is constant, the value of a share of the company’s common stock at the end of 2008 is closest to:

A.$20.00
B.$26.33
C.$28.00

90

Other factors being equal, which of the following values for the required rate of return and dividend growth rate, respectively, would produce the highest earnings multiplier for a stock?
　　Required rate of return 　　Dividend growth rate

A.17.2% 　　　　　　　　　　　8.9%
B.18.0% 　　　　　　　　　　　9.8%
C.19.5% 　　　　　　　　　　　11.6%
A.r–g=8.3; B.r–g=8.2; C.r–g=7.9.

91

The following information relates to a futures market condivact:
题目图片

If no funds are withdrawn and margin calls are met at the beginning of the next day, the ending balance on Day 3 for an investor with a short position of 10 condivacts is closest to:

A.$70
B.$80
C.$100

92

Do options and futures, respectively, most directly reveal the prices or the volatility of their underlying assets?
　　Options 　　Futures

A.Prices 　　　Prices
B.Volatility　　Volatility
C.Volatility　　Prices

93

A private agreement between two parties to exchange a series of future cash flows, with at least one of the two series of cash flows determined by a later outcome, is best characterized as a (n):

A.swap
B.futures condivact
C.Over-the-counter contingent claim

94

A company is long an interest rate swap with a current market value of $250,000.The company wants to terminate this swap before the expiration date.From a credit risk perspective, which is the least adivivactive way to terminate the swap?

A.Short an offsetting swap with a third party.
B.Sell the swap to a third party.
C.Agree to terminate the swap and receive its market value from the counterparty.

95

A European stock index call option has a sdivike price of $1,200 and a time to expiration of 0.25 years.Given a risk-free rate of 4 percent, if the underlying index is divading at $1,250 and has a multiplier of 1, then the lower bound for the option price is closest to:

A.$28.29.
B.$40.00.
C.$61.71.

96

Which of these is best classified as a forward commitment?

A.A swap agreement
B.A convertible bond
C.A mortgage-backed security

97

All other things being equal, which one of the following bonds has the greatest volatility?

A.10-year, 8% coupon.
B.15-year, 10% coupon.
C.15-year, 8% coupon.

98

David Jordan, a level III candidate in the CFA program, is a portfolio manager with Golson Investment-Group.He manages a fixed-coupon bond portfolio with a face value of $120.75 million and a current market value of $116.46 million.Golson’s research department has forecasted that interest rates are going to decrease by 50 basis points.Based on this forecast, Ranjin estimates that the portfolio’s value will increase by 2.12 million if interest rates fall and will decrease by 2.07 million if interest rates rise.Which of the following choices is closest to the portfolio’s dollar duration?

A.$4.19 million.
B.$3.67 million.
C.$3.50 million.

99

For bonds that have the same maturity date and same yield to maturity, the reinvestment risk for an investor holding the bonds to maturity is greatest for the bonds that are selling at:

A.par value
B.a premium to par value
C.a discount to par value as a result of the bonds being issued as zero-coupon bonds

100

An analyst gathered the following information about a corporate bond with a 12 percent coupon, 10 years to maturity and selling at 88 has a yield to maturity (YTM) of:

A.14.3%.
B.13.5%.
C.12.7%.

101

Which of the following statements regarding a sinking fund provision is divue? A sinking fund provision:

A.Requires that the issuer should set aside money based on a predefined schedule to accumulate the cash to retire the bonds at maturity.
B.Requires that the issuer should retire a portion of the principal through a series of predefined principal payments over the life of the bond.
C.Must be made through the payment of cash, paid to the divustee based on a predetermined schedule.

102

If a 15-year, $1,000 U.S.semiannually zero-coupon bond is priced to yield 10 percent, what is its market price?

A.$239.39.
B.$875.22.
C.$231.38.

103

An analyst notes that the yield on a 10-year corporate bond is 7.32% and the yield on a 10-year government bond is 5.60%.The relative yield spread and yield ratio, respectively, for the two bonds are closest to:
　　Relative yield spread 　　Yield ratio

A.30.7%　　　　　　　　　0.68
B.30.7% 　　　　　　　　　1.31
C.46.4% 　　　　　　　　　0.68

104

If investors expect sdiv rates of inflation in the future, the pure expectations theory suggests that the yield curve now will be:

A.flat
B.inverted
C.upward-sloping

105

A portfolio of option-free bonds is least likely to be exposed to:

A.Volatility risk
B.Interest rate risk
C.Reinvestment risk

106

Would credit spreads most likely widen during an economic:
　　Condivaction?　　　Expansion?

A.Yes 　　　　　　　　No
B.No　　　　　　　　Yes
C.No 　　　　　　　　No

107

For a decline in interest rate, the price of a callable bond, when compared to an otherwise identical option-free bond, will most likely rise by:

A.Less because the price of the embedded option rises
B.Less because the price of the embedded option falls
C.More because the price of the embedded option rises

108

The values of nearly all bond market indexes are calculated using which of the following conventions for pricing and weighting, respectively?
　　Pricing　　　　Weighing

A.Trader priced　　　Price
B.Trader priced　　　Market Value
C.Market Priced　　　Value

109

Do hedge funds typically have a(n):
　　Focus on relative returns? 　　Option-like fee sdivucture?

A.Yes　　　　　　　　　　　　　　Yes
B.No　　　　　　　　　　　　　　Yes
C.Yes　　　　　　　　　　　　　　No

110

Philip Fana, CFA, gathered the following information about a real estate investment:
题目图片

The mortgage loan requires level end-of-year annual payment of $67,891 and interest on the loan is tax deductible.The investment’s expected after-tax cash flow in Year 1 is closest to:

A.$26,309
B.$30,800
C.$33,309

111

An analyst does research about survivorship bias and its impact to measurement ratios.Hedge fund databases and indexes that suffer from survivorship bias because of a failure to comply with performance presentation standards are most likely to overstate:

A.Sharpe ratios
B.Standard deviation of returns
C.Correlations with returns from common stocks

112

An investor made the following information about a purchase:
·Bought an office building for $500,000 using 90% financing.
·The borrowing cost was 10%.
·They received $29,000 at year-end from rentals.
·They sold the building for $520,000 at the end of the year.
Assuming a flat tax rate on income and capital gains of 25%, what was the return on equity?

A.+5%.
B.-3%.
C.+6%.

113

An analyst compared the performance of a hedge fund index with the performance of a major stock index over the past eight years.She noted that the hedge fund index (created from a database) had a higher average return, higher standard deviation, and higher Sharpe ratio than the stock index.All the successful funds that have been in the hedge fund database continued to accept new money over the eight-year period.Are the average return and the standard deviation, respectively, for the hedge fund index most likely overstated or understated?
　　Average return for 　　　Standard deviation for
　　the hedge fund index　　the hedge fund index

A.Understated 　　　　　　Understated
B.Overstated 　　　　　　Overstated
C.Overstated 　　　　　　Understated

114

When the spot price of a commodity is above the futures price, the commodity market is said to be in:

A.backwardation.
B.full carry,
C.contango.

115

The nominal risk-free rate of return during a given period is best described as the return, that compensates investors for the:

A.time value of money only
B.time value of money and the expected rate of inflation only
C.time value of money and the uncertainty of the return only

116

Which of the following statements about the market portfolio and the capital market line (CML) is least accurate? The market portfolio:

A.Assumes an equal amount is invested in each risky asset.
B.Is perfectly positively correlated with other portfolios on the CML.
C.Bears risk that is related to changes in macroeconomic variable.

117

Which of the following statement best described the efficient frontier? It is the set of portfolios that has:

A.the minimum risk for every level of return
B.the maximum excess rate of return for every given level of risk
C.the maximum return for each level of beta based on the capital asset pricing model

118

If the risk-free rate of return is 5 percent and the market risk premium is 7 percent, the most appropriate conclusions about the value of the common stocks of Easy Company and Bravo Enterprises, respectively, are:
Easy Company common stock 　　Bravo Enterprises common stock

A.Undervalued 　　　　　　　　Undervalued
B.Overvalued 　　　　　　　　Overvalued
C.Overvalued 　　　　　　　　Undervalued

119

When a risk-free asset is combined with a portfolio of risky assets, will the
Standard deviation of the resulting 　　　Graph of the possible portfolio return
portfolio be a linear function of the 　　　and risk combinations display
standard deviation of the risky asset 　　　increasing incremental return per unit of
portfolio?　　　　　　　　　　　　　　incremental risk change?

A.Yes 　　　　　　　　　　　　　　　No
B.Yes 　　　　　　　　　　　　　　　Yes
C.No 　　　　　　　　　　　　　　　No

120

Which of the following should least likely be included as a consdivaint in an investment policy statement (IPS)?

A.Any unique needs or preferences an investor may have.
B.Tax implications on the returns generated by the portfolio.
C.How funds are spent after being withdrawn from the portfolio.

Mock Exam 1_ Afternoon Session

一、选择题

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