CFA Exam Level 1 Practice Questions 2024, Free Mock Exam

Question #1

John's great-grandfather left him $100 when he died 100 years ago in an account paying 5% per year, compounded annually. How much would the account hold for John now?

A. 12,504

B. 13,150

C. 14,229

D. 8,407

E. 14,113

View answer

Correct Answer: B

Question #2

Under the treasury stock method, primary earnings per share data are computed as if options and warrants (outstanding for the entire year) were exercised at the

A. one of these answers

B. eginning of the period and as if the funds obtained thereby were used to purchase common stock at the current market price in effect at the end of the period

C. nd of the period and as if the funds obtained thereby were used to purchase common stock at the current market price in effect at the end of the period

D. nd of the period and as if the funds obtained thereby were used to purchase common stock at the average market price during the period

E. eginning of the period and as if the funds obtained thereby were used to purchase common stock at the average market price during the period

View answer

Correct Answer: E

Question #3

How much will $1,250 become after 7 years at 10% per year, compounded annually?

A. 2,298

B. 1,324

C. 2,435

D. 2,500

E. 2,388

View answer

Correct Answer: C

Question #4

Which of the following is/are true about "compensating balances?"

A. hey are reserve balances maintained for emergency spending requirements

B. I only

C. & III

D. , II & III

E. I & III

View answer

Correct Answer: D

Question #5

Which of the following statements is NOT correct ?

A. ll of these statements are correct

B. tandards II through V contain principles guiding the general activities of members

C. embers who work in a country where the Code and Standards impose a higher degree of responsibility than local laws and regulations must adhere to the Code and Standards

D. embers are not required to report legal violations to the appropriate governmental or regulatory organizations

E. embers who work in a country where the Code and Standards impose a lesser degree of responsibility than local laws and regulations must adhere to the local laws and regulations

View answer

Correct Answer: B

Question #6

If the use of leverage is ________, the performance presented must include the effects of the leverage.

A. iscretionary

B. andatory

C. ondiscretionary

D. ptional

View answer

Correct Answer: A

Question #7

Standard III (C) deals with ________.

A. one of these answers

B. lagiarism

C. bligation to Inform Employer of Code and Standards

D. se of Professional Designation

E. isclosure of Conflicts to Employer

F. undamental Responsibilities

View answer

Correct Answer: E

Question #8

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$15,000>, Year 1:$2,000, Year 2: $0, Year 3: $15,000, Year 4 to indicate a negative number).

A. 5

B. 8

C. 0

D. 2

E. 5

View answer

Correct Answer: E

Question #9

Jack Saunders is analyzing Barco Incorporated, an industrial conglomerate company. Saunders is estimating the intrinsic value for Barco Incorporated by forecasting the company's earnings per share and earnings multiplier. Which of the following attributes of Barco is least likely to increase the company's earnings multiplier?

A. arco Incorporated has never had a restructuring charge in its history

B. arco Incorporated^ earnings move in tandem with overall economic growth

C. arco Incorporated's dividend has been increasing for the last 30 years

View answer

Correct Answer: B

Question #10

Under accrual accounting, which of the following is/are correct?

A. evenues are recognized when cash is received

B. I, III & IV

C. & III

D. , II, III & IV

E. & II

View answer

Correct Answer: A

Question #11

An AIMR member has violated one of the AIMR code of ethics standards. However, according to the laws of the country governing his behavior, he has done nothing wrong. Then,

A. IMR can take disciplinary action against her

B. IMR cannot take disciplinary action against her

C. here is no violation of the code since local laws were adhered to

D. one of these answers

View answer

Correct Answer: A

Question #12

For a positively skewed, unimodal distribution, which of the following relationships holds?

A. ean < mode

B. ode < median

C. ean > median

D. ean < median

View answer

Correct Answer: C

Question #13

Standard ________ states that the financial analyst must use particular care to maintain independence and objectivity in relationships with issuers of securities.

A. (B

B. II (1)

C. V (A

D. I (C

E. one of these answers

View answer

Correct Answer: C

Question #14

According to GAAP classification of cash flows, all of the following are financing cash flows except:

A. hare repurchase

B. nterest paid on new debt

C. osses on debt retirement

D. ividends paid out

View answer

Correct Answer: B

Question #15

A study of business faculty at state supported institutions in Ohio revealed that the mean salary for nine months is $52,000 and the standard deviation of the sample is $3,000. The study also showed that the faculty had been employed an average (mean) of 15 years with a standard deviation of 4 years. How does the relative dispersion in the distribution of salaries compare with that of the lengths of service?

A. alaries about 6%, service about 27%

B. alaries about 100%, service about 50%

C. alaries about 2%, service about 6%

D. one of these answers

E. alaries about 42%, service about 81%

View answer

Correct Answer: A

Question #16

In a regression, the independent variable explains 79% of the variance in the dependent variable, leaving 21% unexplained. The slope coefficient is 0.67 and the intercept equals -10.2 The correlation coefficient between the two variables is

A.

B.

C.

D. 0

View answer

Correct Answer: B

Question #17

When an investment manager uses client brokerage to purchase research services that benefit the investment manager; this is known as ________.

A. nder-the-table agreements

B. oft dollars

C. hrough-research agreements

D. artering arrangements

E. hifting agreements

View answer

Correct Answer: B

Question #18

When a manager is responsible for the portfolios of pension plans or trusts, the duty of loyalty is owed to the ________.

A. ntity who hires the manager

B. orporation

C. one of these answers

D. anager's supervisor(s)

E. tockholders of the firm

F. oard of directors

View answer

Correct Answer: C

Question #19

The probability that a mutual fund will generate a positive return in the next 12 months is called:

A. conditional probability

B. n unconditional probability

C. joint probability

D. fantasy

View answer

Correct Answer: B

Question #20

Which of the following statements is false in reference to confidence intervals and/or tests of significance? Choose the best answer.

A. ore than one of these answers is correct

B. he specification of a confidence level is the third step in the hypothesis testing process

C. etermining the significance level of a hypothesis test after calculating the test statistic can lead to an erosion of objectivity

D. he significance level is denoted by the Greek letter theta

E. he confidence level can be found by (1 - the probability of a Type I error)

F. he significance level is equal to the probability of a Type I error

View answer

Correct Answer: D

Question #21

How much is in your account in 5 years, if you start with a balance of $1,000 and add $3,500 in 18 months and add an additional $1,000 in 48 months, if the money earns interest at 6% per year, compounded monthly?

A. 5,500

B. 6,514

C. 7,131

D. 6,726

E. 6,892

View answer

Correct Answer: D

Question #22

When preparing a direct method statement of cash flows, the principal component of cash flow from operating activities is

A. he decrease in accounts receivable

B. ash collections

C. ash received from short- and long-term borrowings

D. he increase in accounts payable

E. et income plus depreciation expense

View answer

Correct Answer: B

Question #23

The opinion paragraph of an independent auditor's report begins, "In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position..." This language states ________.

A. n unqualified opinion

B. disclaimer of opinion

C. one of these answers

D. qualified opinion

E. n "except for" opinion

View answer

Correct Answer: A

Question #24

If a nation is running a "trade deficit," it is

A. pending more on public services than it is raising in tax revenues

B. xporting more goods and services than it imports

C. mporting more goods and services than it exports

D. ncountering a balance of payments disequilibrium

E. orse off as the result of its trade with foreign countries

View answer

Correct Answer: C

Question #25

In a given period, the firm's beginning gross investment is 4,000 and ending gross investment is 12,000. The accumulated depreciation at the beginning was 800 and the ending balance in this account was 900. The firm uses straight-line depreciation. The average age of the firm's assets at the end of the period is ________.

A. years

B. 3

C. years

D. 5 years

View answer

Correct Answer: C

Question #26

The formula for calculating profit margin is:

A. et sales minus total expenses divided by net income

B. one of these answers

C. et income divided by net sales

D. otal sales divided by total expenses

View answer

Correct Answer: C

Question #27

If the effects of an expansionary macroeconomic policy are accurately anticipated, then

A. ages will rise more rapidly than product prices

B. arket participants will quickly adjust to the expected inflation

C. rofit margins will improve

D. esource prices will remain constant

View answer

Correct Answer: B

Question #28

The expected value of Y is 9 and the expected value of X is 3. If X and Y are uncorrelated and you run a regression of Y against X, the intercept term will equal ________.

A.

B.

C. one of these answers

D.

View answer

Correct Answer: A

Question #29

The U.S. Department of Education reported that for the past six years 23, 19, 15, 30, 27 and 25 women received doctorate degrees in computer and information sciences. What is the mean arithmetic annual number of women receiving this degree?

A. 5

B. one of these answers

C. 2

D. 7

E. 3

View answer

Correct Answer: E

Question #30

The Performance Presentation Standards maintain that composites should cover a minimum of ________ years, or present the entire record of the firm, if shorter.

A. en

B. ight

C. even

D. wo

E. ive

View answer

Correct Answer: A

Question #31

If the p-value is ________ the significance level, the null hypothesis ________.

A. ess than; can be rejected

B. one of these answers

C. ore than; can be rejected

D. ess than; cannot be rejected

View answer

Correct Answer: A

Question #32

A bell-shaped, symmetrical frequency distribution has a mean of 50. If 68% of the observations in the distribution fall between 40 and 60, what's the range within which 99% of the observations in the distribution fall?

A. 19

B. 23

C. 30; 70]

D. 24

View answer

Correct Answer: D

Question #33

Which of the following is/are true ?

A. ype I error is the event in which we reject the null when it is false

B. I, III & IV

C. I only

D. V only

E. only

F. I & IV

View answer

Correct Answer: A

Question #34

Which of the following is/are TRUE?

A. he cash flow from operations are higher when expenses are capitalized

B. I, III & IV

C. , II, III & IV

D. II & IV

E. & III

View answer

Correct Answer: D

Question #35

The matching principle requires that

A. on-operating gains and losses should be netted against each other

B. proportion of each dollar collected will be assumed to be a recovery of cost

C. evenues earned and expenses incurred in generating those revenues should be reported in the same income statement

D. ssets will be matched to the liabilities incurred to purchase them

View answer

Correct Answer: C

Question #36

How does inflation impact interest rates, all else equal?

A. ncreases the real rate; increases the nominal rate

B. as no direct impact on interest rates

C. as no effect on the real rate; increases the nominal rate

D. ncreases the real rate; has no effect on the nominal rate

E. mpossible to determine

View answer

Correct Answer: C

Question #37

If you deposit $123 into an account paying 6% per year simple interest, what is the balance in your account 8 months later?

A. 182

B. 246

C. 123

D. 127

E. 131

View answer

Correct Answer: D

Question #38

You are examining a group of 6 stocks. Their average annual standard deviations have been 25%, 20%, 15%, 25%, 16%, and 45%. What is the range of annual standard deviations?

A. 5

B. 5

C. 0

D. 9

View answer

Correct Answer: C

Question #39

Firm A uses Double Declining and Firm B uses Sum-of-digits method of depreciation. In the first year, which of the following is/are TRUE?

A. shows lower assets than BII

B. I & IV

C. & III

D. , III & IV

E. I, III & IV

View answer

Correct Answer: B

Question #40

Each salesperson in a large department store chain is rated either below average, average, or above average with respect to sales ability. Each salesperson is also rated with respect to his or her potential for advancementeither fair, good, or excellent. These traits are the 500 salespeople were cross classified into the following table.Sales Ability Potential for AdvancementFair Good ExcellentBelow Average 161222Average 456045Above Average 9372135What is the probability that a sales person selected at rand

A.

B. one of these answers

C.

D.

E.

View answer

Correct Answer: E

Question #41

Social factors

A. one of these answers

B. ust be a primary consideration of investments because of the ERISA rule

C. ay never be a primary consideration of investments

D. ay be a primary consideration of investments, depending on the guidelines of the investment policy

E. ust be a primary consideration of investments because of the prudence rule

F. ust be a primary consideration of investments because of the loyalty rule

View answer

Correct Answer: C

Question #42

When complying with Standard IV (B.3) - Fair Dealing, there are certain points one should be sure to address when establishing compliance procedures. Which of the following points is NOT mentioned in the Standards of Practice Handbook?

A. et as many people involved within the firm that a recommendation is going to be disseminated

B. horten the time frame between decision and dissemination

C. isclose levels of service

D. stablish control over trading activity

E. imultaneous dissemination

F. ublish personnel guidelines for predissemination

View answer

Correct Answer: A

Question #43

Tracy company reports the following in its statement of cash flows:Net Income $1,000Depreciation and Amortization 350Decrease (Increase) in Accounts receivable (10)Decrease (increase) in inventory 200Decrease (increase) in prepaid expenses 80Increase (decrease) in trade payables (300)Increase (decrease) in taxes payable 75Cash Flow from operations 1,395If Tracy shows cost of goods sold of $2,050 on its income statement, cash paid to suppliers is

A. 2,650

B. 1,550

C. 1,950

D. 2,150

View answer

Correct Answer: D

Question #44

Relationships with and Responsibilities to Clients and Prospects are dealt with under:

A. tandard I

B. tandard III

C. one of these answers

D. tandard II

E. tandard V

F. tandard IV

View answer

Correct Answer: F

Question #45

The following information is from the financial statements of Complex Capitalists for 1997 and 1998:Dec. 31, 1997 - 1 million common shares outstanding, capital structure all-equity March 31, 1998 - issued 200,000 common shares.May 31, 1998 - issued 800,000 warrants exercisable at a strike of 35. The average price during 1998 was 34 and the maximum price was 39. Given the above example, the Diluted EPS will use how many shares?

A.

B.

C.

D.

View answer

Correct Answer: D

Question #46

If a firm recognizes expenses before that dictated by accrual accounting, which of the following best describes the effects on income, total assets and retained earnings?Income Total Assets Retained Earnings

A. nderstated Understated UnderstatedII

B. II

C. V

D.

E. I

View answer

Correct Answer: C

Question #47

If you deposit $400 today into an account paying 8% per year, compounded quarterly, how much will be in the account after 42 months?

A. 10,135

B. 1,174

C. 918

D. 927

E. 527

View answer

Correct Answer: E

Question #48

Jack George is evaluating Dunger Inc., a waste management firm. The company has been experiencing a strong 15% growth rate, which is forecasted to continue over the next three years before growth settles down to a sustainable level. Dunger's annual return on equity is expected to be 10%. The company recently paid a dividend of $0.50 per share from reported earnings of $2.50 per share. George has calculated a 10% weighted average cost of capital for Dunger Inc. The firm has no debt. The company's last report

A. ot buy the stock because its intrinsic value is $32 per share

B. uy the stock because its intrinsic value is $38 per share

C. uy the stock because its intrinsic value is $41 per share

View answer

Correct Answer: A

Question #49

What is the critical z-value for a one tailed lower test at the 1% level of risk?

A. 2

B. 2

C. 2

D. one of these answers

E. 2

View answer

Correct Answer: E

Question #50

Standard IV (B.5), Preservation of Confidentiality specifically states that one may not enter into ________ that may prevent a party from cooperating with the Professional Conduct Program (PCP) in its investigation of the member's alleged violations of the Code and Standards.

A. ettlement agreements

B. onfidential conversations

C. riority dealings

D. usiness relationships

View answer

Correct Answer: A

Question #51

The completed contract method

A. ay understate gross profit

B. enerally must be used when no contract exists

C. annot be used for short-term contracts

D. ay be used for long-term contracts at the option of the company

E. ecognizes revenues and costs in proportion to the work completed

View answer

Correct Answer: B

Question #52

As the head of a trading desk at a major bank, it is your job to evaluate whether the superior performance of a trader is due to skill or luck. To test this, you set up the following hypothesis:Ho: Expected excess returns = 0H1: Expected excess returns > 0The excess returns are returns adjusted for risk using a proprietary factor model. In this set-up, which of the following is/are true?

A. ou must employ a one-tailed test

B. only

C. I & III

D. & III

E. & II

F. II only

View answer

Correct Answer: D

Question #53

A market survey was conducted to estimate the proportion of homemakers who could recognize the brand name of a cleanser based on the shape and color of the container. Of the 1,400 homemakers, 420 were able to identify the brand name. Using the 0.99 degree of confidence, the population proportion lies within what interval?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: B

Question #54

Supplementary reserves in the form of accounting entries maintained with the IMF by various governments are known as:

A. fficial Reserve Accounts

B. OP funds

C. pecial Depository Receipts

D. pecial Drawing Rights

View answer

Correct Answer: D

Question #55

An analyst develops the following information to value a common stock.The analyst estimates the required rate of return and uses a DDM to value the shares. The value per share is closest to:

A. 14

B. 21

C. 31

View answer

Correct Answer: A

Question #56

Purchases of marketable securities are:

A. perating cash flows

B. nvesting cash flows

C. inancing cash flows

D. ither financing cash flows or investing cash flows

View answer

Correct Answer: B

Question #57

David's gasoline station offers 4 cents off per gallon if the customer pays in cash and does not use a credit card. Past evidence indicates that 40% of all customers pay in cash. During a one hour period twenty-five customers buy gasoline at this station.What is the probability that more than ten and less than fifteen customers pay in cash?

A.

B.

C.

D. one of these answers

E.

View answer

Correct Answer: E

Question #58

How much will you have in an account two years from now if you start with $100 in it today and add $300 to it one year from now? Assume that interest is 6% per year, compounded annually.

A. 430

B. 424

C. 449

D. 372

E. 400

View answer

Correct Answer: A

Question #59

If you deposit $250 a year, beginning next year, for 30 years into an account paying 6% per year, compounded annually, how much is in your account after that last deposit?

A. 21,149

B. 12,334

C. 19,764

D. 18,304

E. 3,441

View answer

Correct Answer: C

Question #60

An insurance agent has appointments with four prospective clients tomorrow. From past experience the agent knows that the probability of making a sale on any appointment is 1 out of 5. Using the rules of probability, what is the likelihood that the agent will sell a policy to 3 of the 4 prospective clients?

A.

B. one of these answers

C.

D.

E.

View answer

Correct Answer: D

Question #61

ERISA fiduciaries must adhere to the following prudent procedures:- establish a written investment policy for the plan - diversify plan assets- make investment decisions with the skill and care of a prudent expert- monitor investment performance- control investment expenses- avoid ________ transactions

A. nsider

B. iversification

C. rohibited

D. one of these answers

E. ommitment

View answer

Correct Answer: C

Question #62

The creation of bond indexes is relatively new. Which of the following is the least likely reason a bond index would be difficult to create?

A. ack of continuous trading data

B. onstantly changing duration for bonds

C. he universe of bonds is limited

View answer

Correct Answer: C

Question #63

A(n) ________ is someone who has knowledge of pending or actual investment recommendations or action.

A. IMR member

B. ccess person

C. one of these answers

D. nsider

View answer

Correct Answer: B

Question #64

On Jan 1, a firm had 700 stocks outstanding. On May 1, it issued 300 more shares. On October 1, it repurchased 100 shares. If the firm's net income was 12,000 and it paid a preferred dividend of 1,400, its reported EPS is ________.

A. 2

B. 0

C. 1

D. 2

View answer

Correct Answer: D

Question #65

Under a periodic inventory system, how is COGS determined?

A. he cost of ending inventory is subtracted from costs of goods available for sale

B. ost of goods sold is accumulated as sales are made

C. nding inventory is counted and subtracted from beginning inventory

D. one of these answers

View answer

Correct Answer: A

Question #66

If the quality of education in the U.S. improved, the direct effect would be a(n)

A. eduction in prices

B. ncrease in both output and prices

C. ncrease in both long-run and short-run aggregate supply

D. ncrease in both short-run aggregate supply and aggregate demand

View answer

Correct Answer: C

Question #67

A linear regression is ________ relationship.

A. causal

B. n acausal

C. functional

D. one of these answers

View answer

Correct Answer: C

Question #68

Discrepancies between the changes in accounts reported on the balance sheet and those reported in the cash flow statement are due to

A. nvestment in majority interests

B. oreign exchange translations

C. nfunded pension liabilities

D. rior period adjustments and accounting rule changes

E. cquisitions and divestitures, and foreign subsidiaries

View answer

Correct Answer: E

Question #69

Each ________ needs to comprise portfolios or asset classes that represent a similar investment goal.

A. eturn

B. omposite

C. alue

D. enchmark

E. ix

View answer

Correct Answer: B

Question #70

Which of the following relating to procedures for complying with Standard III (E) is false? The compliance procedures should:

A. utline permissible conduct

B. elineate procedures for reporting violations and sanctions

C. e easy to understand

D. utline the scope of the procedures

E. esignate a compliance officer

F. one of these answers

View answer

Correct Answer: F

Question #71

Which of the following statements about ratios is false?

A. nalysis of ratios can identify areas that require further investigation

B. ll of these answers are true

C. ratio expresses a mathematical relation between two, or more, economically important quantities

D. he advantage of ratio analysis is that very little skill is required in interpreting the meaning of the ratios

E. atios must be interpreted with care since factors affecting the numerator can correlate with those affecting the denominator

View answer

Correct Answer: D

Question #72

According to Chebyshev's Theorem, what percent of the observations lie within plus and minus 1.75 standard deviations of the mean?

A. annot compute because it depends on the shape of the distribution

B. 6%

C. 5%

D. 7%

E. one of these answers

View answer

Correct Answer: D

Question #73

A perpetual preferred stock has a face value of $1,000 and a coupon rate of 6% per year. If it is issued at $850, what's the implicit annual discount rate?

A.

B.

C.

D.

View answer

Correct Answer: D

Question #74

Because it is not the preferred method recommended by the PPS, the use of ________ valuation needs to be disclosed.

A. ew-date

B. ettlement-date

C. rade-date

D. ld-date

E. urvivor-date

View answer

Correct Answer: B

Question #75

When the number of discouraged workers increases during a severe recession,

A. he measured unemployment tends to overstate the severity of the unemployment problem

B. he measured unemployment tends to understate the severity of the unemployment problem

C. rictional unemployment will rise

D. he natural unemployment will decline

View answer

Correct Answer: B

Question #76

A product financing arrangement exists when

A. he party who manufactures the inventory gives extended terms to certain preferred customers

B. party transfers ownership of inventory to a purchaser yet retains the inventory in their own warehouse

C. ll of the answers would be accounted for as product financing arrangements

D. party bearing the risks and rewards of ownership transfers inventory to a purchaser, and in a related transaction agrees to repurchase the product at a specified price over a specified time

View answer

Correct Answer: D

Question #77

A sample of the monthly amounts spent for food by families of four receiving food stamps approximates asymmetrical distribution. The sample mean is $150 and the standard deviation is $20. About 95 percent of the monthly food expenditures are between what two amounts?

A. one of these answers

B. 110 and $190

C. 205 and $220

D. 85 and $105

E. 100 and $200

View answer

Correct Answer: B

Question #78

Which Standard deals with personal integrity and prohibits individual behavior that reflects badly on the investment industry?

A. II (C)

B. (D)

C. I (B)

D. II

E. one of these answers

F. V (A)

View answer

Correct Answer: B

Question #79

The best indication of a firm's present and continuing ability to generate favorable cash flows is information about enterprise earnings based on which of the following basis?

A. ax accounting

B. ash accounting

C. odified cash accounting

D. ccrual accounting

E. odified accrual accounting

View answer

Correct Answer: D

Question #80

The research analyst for a stock brokerage firm wants to compare the dispersion in the price-earnings ratios for a group of common stock with their return on investment. For the price-earnings ratios, the mean is 10.9 and the standard deviation is 1.8. The mean return on investment is 25 percent and the standard deviation is 5.2 percent. What is the relative dispersion for the price earnings ratios and return on investment?

A. one of these answers

B. atios 50

C. atios 132

D. atios 32

E. atios 16

View answer

Correct Answer: E

Question #81

A very small p-value calculated in a sample implies that:

A. he null hypothesis should be rejected

B. he null hypothesis is very likely true

C. he alternate hypothesis is very likely false

D. he null hypothesis should be accepted

View answer

Correct Answer: A

Question #82

The Investment Company Institute reported in its Mutual Fund Fact Book that the number of mutual funds increased from 410 in 1985 to 857 in 1995. What is the geometric mean annual percent increase in the number of funds?

A. 8

B. one of these answers

C.

D. 9

E.

View answer

Correct Answer: E

Question #83

Excerpts from the balance sheet of Milton Corporation as of April 30, 1997 are presented as follows:Cash $725,000Accounts receivable (net) $1,640,000Inventories $2,945,000Total current assets $5,310,000Accounts payable $1,236,000Accrued liabilities $831,000Total current liabilities $2,067,000The board of directors of Milton met on May 5, 1997 and declared a quarterly cash dividend in the amount of $200,000 ($0.50 per share). The dividend was paid on May 28, 1997 to shareholders of record as of May 15, 1997.

A. nchanged by either the dividend declaration or the dividend distribution

B. ncreased by the dividend declaration and unchanged by the dividend distribution

C. ecreased by the dividend declaration and increased by the dividend distribution

D. nchanged by the dividend declaration and decreased by the dividend distribution

E. ncreased by the dividend declaration and decreased by the dividend distribution

View answer

Correct Answer: A

Question #84

Pete Morris has written a deep out-of-the-money call option on the stock of Omacon, a small capitalization technology company with a very promising medical software product. Omacon stock had risen 365% for the 12 months ended just three weeks ago, but delays with release of the new software have disappointed investors, and the stock has lost 50% of its market value in the past three weeks. When he wrote the options yesterday, Morris received a premium of $3.00 each. Morris would have risk only:

A. f the stock price rose above the option strike price

B. f the stock price fell below the option strike price

C. n the amount of the premium he received

View answer

Correct Answer: A

Question #85

Jane Higgins, CFA, is analyzing a corporate bond that she believes is a suitable addition for a client's portfolio. The 10-year security has a 7.50% annual coupon and is non-callable by the issuer. The bond is currently priced at 104.5 to yield 7.177%. According to Higgins* analysis, for a 25 basis point decrease in yield, the bond's price will increase to 107.4166 and for a 25 basis point increase in yield, the bond's price will decrease to 101.3834. Higgins' estimation of the bond's effective duration is

A.

B. 0

C. 1

View answer

Correct Answer: C

Question #86

Within the Keynesian model, equilibrium output takes place ________.

A. hen actual and expected rates of inflation are equal

B. hen the nominal interest rate and real interest rate are equal

C. hen spending equals output

D. t full employment

View answer

Correct Answer: C

Question #87

Which of the following AIMR standards pertains to the responsibilities of supervisors?

A. V

B. I C

C.

D. one of these answers

View answer

Correct Answer: D

Question #88

Assume that there is a widely accepted belief in the U.S. that 1-year interest rates will remain stable at their current level of 3.25%. A yield curve derived from spot rates on U.S. Treasury securities shows the following data:Maturity Spot Rate1 year 3.25%2 years 4.00%5 years 6.80%10 years 7.20%The yield curve based on this data is least consistent with which theory of the term structure of interest rates?

A. ure expectations

B. iquidity preference

C. arket segmentation

View answer

Correct Answer: A

Question #89

Abra, a vice-president at Mahogany, Inc., recently revealed - quite inadvertently - information about the tender offer from Mahogany to Kadabra, his friend who works for a rival firm. Kadabra, in turn, shared this information with his trading buddy, Cosmo. Cosmo immediately recognized that in light of this information, he was better off not participating in the offer. He went ahead and shorted the stock of Mahogany and reaped a tidy profit of about a hundred thousand dollars in a month's time when Mahogany

A. osmo can be held liable for insider trading under SEC Section 10(b) and Rule 10b-5

B. , II, III & IV

C. only

D. one of these answers

E. II only

F. & IV only

View answer

Correct Answer: C

Question #90

A shoe manufacturer believes inflation will increase dramatically over the next year. What incentives does this create for this firm?

A. he firm will manufacture less, knowing that prices will be higher in the future

B. he firm will respond to demand from retailers, regardless of inflation

C. f inflation is widely expected, it will have no impact on the firm's strategy

D. he firm will want to decrease inventories now because future inventories will be more costly and therefore less profitable

E. he firm will attempt to store shoes in inventory, knowing that in the future these shoes will be worth more

View answer

Correct Answer: E

Question #91

Bartel Corp. has decided to build a new manufacturing facility in a foreign country where production costs will be considerably less than costs at Bartel's aging domestic plant. Bartel expects the increased profits from this off-shore facility will completely pay off the cost of construction within seven years. Bartel hopes to finance the new facility with a single debt issue with the lowest possible coupon rate. The form of borrowing best suited to this project would most likely be:

A. edium-term notes (MTN)

B. ebentures with a negative pledge clause

C. ecured mortgage bonds

View answer

Correct Answer: C

Question #92

All of the following are often characteristics of intangible assets except:

A. hey are often non-separable from a company

B. he value of the assets portrayed in the financial statements tends to increase for companies performing a lot of R&D

C. hey have indefinite benefit periods

D. hey experience large valuation changes based on competitive circumstances

View answer

Correct Answer: B

Question #93

The inevitable consequence of price controls is:

A. ncreased currency convertibility

B. one of these answers

C. he development of black markets

D. rade war

View answer

Correct Answer: C

Question #94

Maria Reyes, CFA, recently purchased a 10 year floating rate bond which is reset semiannually. The bond's coupon is based on the six-month Treasury rate plus 200 basis points with a cap of 8.50%. Identify the TRUE statement regarding these floating rate bonds.

A. he maximum coupon rate on these bonds would occur when the six-month Treasury bill was at 8

B. hese floating rate bonds have more interest rate risk than comparable floating rate bonds that reset annually

C. f the six-month Treasury rate has been greater than 7

View answer

Correct Answer: C

Question #95

Keynesian analysis suggests that a planned budget surplus

A. ill affect aggregate demand only if the money supply decreases by the size of the surplus

B. s proper during periods of inflation but may increase unemployment if timed improperly

C. ill stimulate output and employment

D. ill stimulate both consumption and income

View answer

Correct Answer: B

Question #96

Members ________ to be in compliance with the Performance Presentation Standards to be in compliance with Standard V (B).

A. re not required

B. ay be required

C. re always required

D. one of these answers

E. ill be required, as of 1/1/2001,

F. ill be required, as of 1/1/2002,

View answer

Correct Answer: A

Question #97

The ________ assumption must be disclosed if results are presented after taxes.

A. omposite

B. ax rate

C. ettlement-date

D. election

E. rade

View answer

Correct Answer: B

Question #98

New Gestalt, Inc., a software firm had a net income of 1.7 million last year. It has 200,000 common shares and 300,000 convertible bonds with face value of 100 outstanding. The convertible bonds carry a coupon of 4% and can be converted one-for-one. The average stock price last year was 39 and the maximum price was 57. The effective interest rate on the convertible debt is 8%. New Gestalt issued 100,000 preferred shares with face value 100 and a coupon of 5% on March 31st of last year. Assume the convertibl

A.

B.

C.

D.

View answer

Correct Answer: C

Question #99

In a sample of 2,000 persons, 1,600 favored more strict environmental protection measures. What is the estimated population proportion?

A.

B.

C.

D. one of these answers

E.

View answer

Correct Answer: E

Question #100

The median and the mode of the sample: 3, 2, 4, 5, 6, 99, 99, 100 equal:

A. 9, 6

B. , 99

C. , 99

D.

View answer

Correct Answer: D

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