CFA Exam Level 1 Practice Questions, Sample Questions

Question #1

Cash outflows for payment of cash dividends is an example of:

A. ash flows from operating activities

B. ash flows from financing activities

C. ash flows from noncash investing and financing activities

D. ash flows from investing activities

View answer

Correct Answer: C

Question #2

When an auditor finds that the audit is insufficient in scope to render an opinion, he will issue ________.

A. n unqualified opinion

B. n adverse opinion

C. qualified opinion

D. disclaimer of opinion

View answer

Correct Answer: D

Question #3

The weighted average method is based on the assumption that the cost of merchandise sold should be calculated using the:

A. verage price of beginning inventory plus purchases during the period

B. verage price per unit of ending inventory

C. verage price of ending inventory plus purchases during the period

D. verage price per unit of beginning inventory

View answer

Correct Answer: A

Question #4

"Restricted Periods" are discussed in Standard IV (B.4), Priority of Transactions. Another name for restricted periods is ________ periods.

A. lackout

B. estrained

C. one of these answers

D. aptive

View answer

Correct Answer: A

Question #5

If a restrictive fiscal policy places downward pressure on real interest rates, we would expect

A. ll of these answers are correct

B. nflationary pressures to increase

C. n increase in the dollar

D. n outflow of capital

E. n increase in the budget deficit

View answer

Correct Answer: D

Question #6

You are running a year-end bonus pool for your top credit analysts. You have 10 analysts, and you wish to recognize the top 3. How many different possible outcomes are there, if all three get the same bonus? How many different outcomes are there if the top analyst gets 50% of the bonus pool, the second best analyst gets 30%, and the third best gets 20%?

A. 20; 720

B. 20; 120

C. 20; 720

D. 20; 120

View answer

Correct Answer: C

Question #7

Assume a student received the following grades for the semester: History, B; Statistics, A; Spanish, C; and English, C. History and English are 5 credit hour courses, Statistics a 4 credit hour course and Spanish a 3 credit hour course. If 4 grade points are assigned for an A, 3 for a B and 2 for a C, what is the weighted mean for the semester grade?

A.

B.

C.

D.

E.

View answer

Correct Answer: D

Question #8

If 68% of the observations on a normal distribution fall between -20 and + 60, the mean and the standard deviation of the distribution are:

A. 0,40

B. 0,20

C. 0,40

D. 0,20

View answer

Correct Answer: A

Question #9

A portfolio consists of a six-year annuity paying $250 a year and a perpetuity that pays $300 a year. The payments start at the end of the year. With a discount rate of 9% per year, the portfolio is worth:

A. 5,210

B. 3,333

C. 4,454

D. 4,768

View answer

Correct Answer: C

Question #10

According to the AIMR-PPS, account portfolios must be grouped into composites

A. ased on similar investment strategy or objective

B. ll of these answers are correct

C. ased on the date the portfolios were initiated

D. ased on the individual account manager's clientele

View answer

Correct Answer: A

Question #11

Which of the following would not be a limitation of the balance sheet?

A. ong-lived assets may not reflect their market value because they are stated at historical cost

B. ignificant assets and liabilities may be omitted because GAAP does not require their inclusion

C. AAP permits companies to delay recognition of value changes, such as employee benefit plans

D. ome assets and liabilities are carried at historical cost bearing little relationship to their real market value

E. he firm's market value would not be able to be estimated due to historical costing

View answer

Correct Answer: E

Question #12

Allen Jackson believes the stock of JMH Corporation is severely overvalued. JMH trades for 12.3 times annualized earnings, but Jackson thinks the multiple should be 8.1 times. In order to take advantage of the expected 35% drop in the price, Jackson decides to establish a short position in JMH stock. Which of the following is Jackson least likely to do in order to establish a short position?

A. orrow the stock from another investor

B. einvest any dividend payments

C. ost margin with his brokerage firm

View answer

Correct Answer: B

Question #13

The change in aggregate income/output for a given change in aggregate expenditure is known as the:

A. emand multiplier

B. xpenditure multiplier

C. arginal propensity to consume

D. ncome elasticity

View answer

Correct Answer: B

Question #14

How many annual deposits of $1,000, beginning next year, would you need to make before you had accumulated $30,000, if the money earns 8% per year, compounded annually? Assume the account begins with a $0 balance.

A. 5

B. 5

C.

D.

E. 1

View answer

Correct Answer: A

Question #15

The probability that a value from a normal distribution will be less than 4 equals 83%. If the distribution has a mean of 2.2, the standard deviation of the distribution must be:

A.

B.

C.

D.

View answer

Correct Answer: C

Question #16

The annual income and expense figures for a proposed property under consideration for purchase, along with some recent sales data, are given below.The appraised value for the proposed property using the income approach is closest to:

A. 1,268,125

B. 1,504,375

C. 1,623,200

View answer

Correct Answer: B

Question #17

When a firm's inventory undergoes LIFO liquidation under rising prices, it experiences ________.

A. igher income and higher cash flows

B. igher income and lower cash flows

C. ower income and lower cash flows

D. ower income and higher cash flows

View answer

Correct Answer: B

Question #18

Suppose you were given $4,000 today and deposited it into an account paying 8% per year, compounded monthly. If you know that you will need $5,000 in the account 6 years from now, what monthly withdrawal can you make from the account, beginning one month from now, that will leave the account with exactly $5,000 in it in 6 years?

A. 204

B. 15

C. an't be done

D. 123

E. 1

View answer

Correct Answer: B

Question #19

Stock splits have the following effects on the financial statements except:

A. he account title for common stock changes to reflect the change in the par value of stock

B. ontributed capital and retained earnings are unchanged

C. isclosures about the stock on the balance sheet are changed to reflect the additional outstanding shares and the revised par value per share

D. he shareholder's percentage interest in the corporation is changed by the percentage change in the market value of the stock

View answer

Correct Answer: D

Question #20

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. imultaneous dissemination

B. stablish procedures for determining material change

C. isclose levels of service

D. ublish personnel guidelines for predissemination

E. imit the number of people involved

F. e flexible on the time frame between decision and dissemination

View answer

Correct Answer: F

Question #21

Regarding Standard III (A), which of the following is true?

A. f the employer has publicly acknowledged, in writing, adoption of AIMR's Code and Standards as part of its firm policies, then the member need not give formal written notification

B. member does not have to notify the supervisor, if the supervisor is a CFA charterholder

C. otification must be given to the chief operating officer (or equivalent), orally or in writing

D. otification must always be given, orally or in writing

E. one of these answers is true

View answer

Correct Answer: A

Question #22

An empirical finance professor estimates the following regression between the return on a stock, R, and the return on S&P 500 index, Rsp:R = 5% + 1.1 Rsp + error termIf the regression R-square is 0.25, estimate the change in the return on the stock when the return on the S&P 500 index changes from 12% to 15%.

A. 9

B.

C. 8

D.

View answer

Correct Answer: D

Question #23

The correction of an error in the financial statements of a prior-period should be reported, net of applicable income taxes, in the current

A. one of these answers

B. ncome statement after income from continuing operations and after extraordinary items

C. ncome statement after income from continuing operations and before extraordinary items

D. etained earnings statement after net income but before dividends

E. etained earnings statement as an adjustment of the opening balance

View answer

Correct Answer: E

Question #24

How many deposits of $450 a month, beginning next month, are needed before an account has $200,000 in it, assuming it had a balance of $0 at the beginning and that interest is 6% per year, compounded monthly?

A. 66

B. 34

C. 19

D. o solution/Error

E. 44

View answer

Correct Answer: B

Question #25

Samples of the wires coming off the production line were tested for tensile strength. The statistical results (in PSI) were:Mean = 500Median = 500Mode = 500Standard deviation = 40Mean deviation = 32Quartile deviation = 25Range = 240Number is sample = 100The middle 95 percent of the wires tested between approximately what two values?

A. 50 and 550

B. 20 and 580

C. 80 and 620

D. 60 and 540

E. one of these answers

View answer

Correct Answer: B

Question #26

To fulfill the duty to inform their employer that they must follow AIMR's Code and Standard, members must:

A. nform their immediate supervisor in writing

B. nform their immediate supervisor either orally or in writing

C. nform the firm's chief executive officer in writing

D. nform the firm's chief executive officer either orally or in writing

View answer

Correct Answer: A

Question #27

Which of the following is used to calculate the actual adjustment for bad debt expense for the period?

A. ercent of accounts receivable

B. ercent of net sales

C. ging

D. ll of these answers

View answer

Correct Answer: B

Question #28

A Japanese investor purchasing a U.S. government bond

A. auses the yen to appreciate

B. reates a demand for yen and a supply of dollars in the foreign exchange market

C. auses the dollar to depreciate

D. reates a demand for dollars and a supply of yen in the foreign exchange market

View answer

Correct Answer: D

Question #29

A variable, Z, is regressed against variables X and Y and the following equation is estimated: Z = -3.0 + 1.2X - 2.5Y + error. If X = 5 and Y = 3, the estimated value of Z is ________.

A. 3

B. annot be estimated since the error term is unknown

C. 1

D. 4

View answer

Correct Answer: D

Question #30

An investment of $100 grows in four years to $345. The investor observes that the annual arithmetic rate of return and the geometric rate of return were the same over this period. The annual arithmetic rate of return must be ________.

A. 0

B. 3

C. 4

D. 7

E. 6

View answer

Correct Answer: E

Question #31

If you deposit $245 into an account paying 5.5% per year simple interest, how much interest will be earned after 15 months?

A. 259

B. 15

C. 202

D. 261

E. 16

View answer

Correct Answer: E

Question #32

If the level of confidence is lowered from 95% to 90%, but the allowable error and the standard deviation remain the same, what happens to the required sample size?

A. one of these answers

B. ecreases

C. ncreases

D. emain unchanged

View answer

Correct Answer: B

Question #33

The constant-growth dividend discount valuation model states that the fair price of a share of common equity is determined by dividing next period's forecasted dividend by the difference between the cost of equity capital and the firm's long-term sustainable growth rate. Using this relationship, the cost of equity capital can alternatively be stated as:

A. /V + g

B. FR-(+ RFR)

C. xpected growth rate of dividends minus required rate of return

View answer

Correct Answer: A

Question #34

Standard III (A) deals with ________.

A. one of these answers

B. bligation to Inform Employer of Code and Standards

C. rofessional Misconduct

D. se of Professional Designation

E. lagiarism

F. uty to Employer

View answer

Correct Answer: B

Question #35

The following information should be used according to the provisions of SFAS 95 (Statement of Cash flows) and using the following data.Net Income $50,000Provision for bad debts $2,000Increase in Inventory $1,000Increase in accounts payable $2,000Purchase of new equipment $15,000Sale of equipment for $10,000 gain $20,000Depreciation expense $5,000Repurchase of common stock $10,000Payment of dividend $4,000Interest payment $3,000What is change in cash?

A. 39,000

B. 45,000

C. 46,000

D. 49,000

View answer

Correct Answer: A

Question #36

Which of the following is/ are true?

A. n increase in inventories has a positive impact on cash flows

B. II & IV

C. I & III

D. & II

E. , II, III & IV

View answer

Correct Answer: A

Question #37

Which of the following is not an example of a cash flow from operations?

A. ash paid for merchandise

B. one of these answers

C. ash received from customers

D. ash paid for taxes

View answer

Correct Answer: B

Question #38

Scott works for a regional brokerage firm. He estimates that Walkton Industries will increase its dividend by $1.50 a share during the next year. He realized that this increase is contingent on pending legislation that would, if enacted, give Walkton a substantial tax break. The U.S. representative for Walkton's home district has told Scott that, although he is lobbying hard for the bill and prospects for passage look good, Congress's concern over the federal deficit could cause the tax bill to be voted dow

A. cott violated the Standards because he used material inside information

B. and II only

C. I only

D. only

E. II only

View answer

Correct Answer: B

Question #39

Ron Travis, CFA, manages a portfolio of long-term and short-term bonds. The portfolio is equally weighted between 1-year, 2-year, 10-year, and 20-year maturities and currently has a portfolio duration equal to 7.0. Travis is concerned that 1- and 2-year interest rates are going to increase by 100 basis points while 10- and 20-year rates decrease by 100 basis points. If his prediction is correct, Travis' measure of duration will be ineffective at predicting interest rate risk since portfolio duration is only

A. ield curve does not shift

B. hift in the yield curve is parallel

C. ield curve steepens

View answer

Correct Answer: B

Question #40

Each of the following is true regarding Standard II (A), except:

A. ou must be registered for the next CFA exam in order to call yourself a candidate

B. his standard relates to business cards and letterheads

C. his standard does not relate to oral statements

D. here is no designation for someone who has passed Level I, II, or III

E. ll of these answers

F. andidates may state that they have completed Level I, II, or III

View answer

Correct Answer: C

Question #41

Cash received from the sale of fixed assets is an example of:

A. ash flows from investing activities

B. ash flows from operating activities

C. ash flows from financing activities

D. ash flows from noncash investing and financing activities

View answer

Correct Answer: A

Question #42

A sample of the paramedical fees charged by clinics revealed these amounts: $55, $49, $50, $45, $52 and $55.What is the median charge?

A. one of these answers

B. 51

C. 47

D. 52

E. 55

View answer

Correct Answer: B

Question #43

Under accrual accounting, revenues are recognized when:

A. ales are made

B. , II, & III

C. & IV

D. & III

E. I & III

View answer

Correct Answer: D

Question #44

If you deposit $7,000 into an account paying 6% per year, compounded annually, how much do you have in the account in 20 years?

A. 15,938

B. 23,403

C. 20,800

D. 22,470

E. 22,449

View answer

Correct Answer: E

Question #45

Inflation is problematic for which of the following reasons

A. urchasing power declines at a faster rate than incomes riseII

B. , III

C. only

D. I, III

E. II only

F. II only

View answer

Correct Answer: D

Question #46

An analyst uses a temporary supernormal growth model to value a common stock. The company paid a $2 dividend last year. The analyst expects dividends to grow at 15% each year for the next three years and then to resume a normal rate of 7% per year indefinitely. The analyst estimates that investors require a 12% return on the stock. The value of this common stock is closest to:

A. 48

B. 53

C. 71

View answer

Correct Answer: B

Question #47

Wiotech, LLC, a private company, is in the process of developing a revolutionary drug to fight Alzheimer's disease. The drug is in stage 2 development. The management team consists of several experienced clinical doctors. A reputable Wall Street firm has provided venture capital financing. The company would like to go public in the next few years. Which of the following is least likely to be a unique risk of this investment compared to other types of investment?

A. nexperienced entrepreneurs

B. ncertain time to success

C. imited information

View answer

Correct Answer: C

Question #48

Where does the coefficient of variation (CV) generally lie between?

A. 1 and +1

B. 3 and +3

C. one of these answers

D. % and infinity

E. nlimited values

View answer

Correct Answer: D

Question #49

Within the Keynesian model, if an economy operates below full employment,

A. educing wage rates and resource prices will quickly restore full-employment equilibrium

B. educing government expenditures will direct the economy back to full- employment equilibrium

C. n increase in the real interest rate will soon restore full-employment equilibrium

D. utput will tend to remain below full-employment capacity unless aggregate expenditures increase

E. educing the real interest rate will soon restore full-employment equilibrium

View answer

Correct Answer: D

Question #50

Under the Percentage-of-completion method of recognizing contract revenue, common methods of estimation of completion include all of the following except:

A. atio of units completed to total units expected to be completed

B. atio of costs incurred by expected total costs

C. atio of profits of the company year to date to expected profits for the year of the company

D. atio of units delivered to total units expected to be delivered

View answer

Correct Answer: C

Question #51

Which of the following items that are reported on an income statement will directly affect the retained earnings from one accounting period to another?

A. he sale of new common stock

B. he payment of cash dividends

C. he purchase of new equipment with the proceeds of a loan

D. one of these answers

E. ccounts payable

View answer

Correct Answer: B

Question #52

"Prohibited transactions" are discussed in Standard IV (B.4), Priority of Transactions. Which of the following is NOT suggested as a prohibited transaction for investment personnel?

A. quity-based IPOs

B. rivate placements

C. quity securities

D. one of these answers

E. unicipal bonds

View answer

Correct Answer: E

Question #53

A sample of assistant professors on the business faculty at state supported institutions in Ohio revealed the mean income to be $32,000 for 9 months with a standard deviation of $3,000. Using Chebyshev's Theorem, what is the proportion of faculty that earn more than $26,000 but less than $38,000?

A. t least 25%

B. one of these answers

C. t least 75%

D. t least 100%

E. t least 50%

View answer

Correct Answer: C

Question #54

Chris South owns $25,000 face value of Bradco bonds, which have a 7% coupon, pay interest semiannually, and have six years remaining until maturity. The bonds are callable at par. The bonds were rated A when Chris bought them at par two years ago, and they are currently worth $26,225, with a rating of AA. Which of the following statements most accurately describes the change in the risk of the Bradco bonds?

A. all risk has decreased

B. iquidity risk has increased

C. redit risk has decreased

View answer

Correct Answer: C

Question #55

The construction of cash flow statement using the indirect method requires which of the following?

A. ncome Statement

B. & II

C. , II & III

D. , II & IV

E. & III

View answer

Correct Answer: A

Question #56

Which of the following is an essential characteristic of a liability?

A. he identity of the recipient entity must be known to the obligated entity before the time of settlement

B. iabilities represent an obligation that has arisen as the result of a previous transaction

C. one of these answers

D. iabilities must be legally enforceable

E. iabilities must require the obligated enterprise to pay cash to a recipient entity

View answer

Correct Answer: B

Question #57

Which of the following is NOT a deferred credit item?

A. eferred gain on installment sales

B. one of these answers

C. eferred tax credits

D. dvance rental payments

View answer

Correct Answer: B

Question #58

Government regulation of charitable organizations and public pension plans:

A. as increased as these organizations have grown in size and importance

B. one of these answers

C. as lessened, since there is a growing trend away from charitable organizations since 1989

D. s still absent, although there is an effort to change this

View answer

Correct Answer: A

Question #59

The weighted average method is based on the assumption that the cost of merchandise sold should be calculated using the:

A. verage price of beginning inventory plus purchases during the period

B. verage price per unit of ending inventory

C. verage price per unit of beginning inventory

D. verage price of ending inventory plus purchases during the period

View answer

Correct Answer: A

Question #60

What is the probability of making a Type II error if the null hypothesis is actually true?

A.

B. lpha

C.

D.

E. one of these answers

View answer

Correct Answer: D

Question #61

Which of the following would not be reported as an extraordinary item?

A. ain or loss on sale of fixed assets

B. ain or loss from passing of a new law

C. ain or loss from early retirement of debt

D. ninsured loss from a flood

View answer

Correct Answer: A

Question #62

Suppose that stock prices are mean reverting over a three to five year period. Which form of the efficientmarket hypothesis does this violate?

A. one

B. eak form only

C. emistrong and weak forms only

View answer

Correct Answer: B

Question #63

An economic researcher estimates the following regression between the annual income, I, of a family and the amount it spends on consumption goods, C:C = 2,000 + 0.65 I + error termIf the R-square of the regression is just 0.3, estimate the amount that a family with an income of 50,000 will spend on consumption.

A. 4,500

B. one of these answers

C. 2,500

D. ,000

View answer

Correct Answer: A

Question #64

What is the relationship among the mean, median and mode in a symmetric distribution?

A. ean is always the smallest value

B. ean is always the largest value

C. one of these answers

D. ode is the largest value

E. ll equal

View answer

Correct Answer: E

Question #65

The larger the critical value on the z-statistic,

A. ll of these answers can happen, depending on the R-square

B. he harder it is to reject the null hypothesis

C. he easier it is to accept the null hypothesis

D. he easier it is to reject the null hypothesis

E. one of these answers

View answer

Correct Answer: B

Question #66

You are faced with a counting problem in which you must choose k objects from n total objects. The order of choosing matters. The counting method you should use is:

A. he binomial formula

B. he multinomial formula

C. one of these answers is correct

D. he permutation rule

View answer

Correct Answer: D

Question #67

A liability can be recognized when

A. n obligation exists to make a future payment based on a past event

B. ny time a future payment is due

C. nly when the amount is certain

D. ll of these answers are correct

View answer

Correct Answer: A

Question #68

Relative to the French franc, the dollar has over the period 1973 to 1993:

A. allen from a high of 25

B. one of these answers

C. allen from a high of 22

D. isen from 22

E. as remained relatively stable around 15 francs to the dollar

View answer

Correct Answer: C

Question #69

The significance level of a test is usually equal to which of the following:

A. he power of a test

B. he probability of a Type I error

C. one of these answers is correct

D. he probability of a Type II error

E. ore than one of these answers is correct

F. 1 - the probability of a Type I error)

View answer

Correct Answer: B

Question #70

A reserve requirement of 5 percent implies a potential money deposit multiplier of ________.

A. 0

B.

C. 0

D. 5

E. 00

View answer

Correct Answer: A

Question #71

Which of the following is/are true?

A. here are as many values above the median as below it

B. I & IV

C. , II & IV

D. only

E. I only

F. & IV

View answer

Correct Answer: E

Question #72

Richard Eisenberg, a quantitative analyst with Middle Road Brokerage, has been instructed to perform a statistical analysis to determine the relationship between the volatility of smaller-cap stocks and the quarterly performance of a series of smaller-cap mutual funds. Mr. Eisenberg begins his assignment by formulating and stating a hypothesis. Next, he identifies the appropriate test statistic and the probability distribution for the series. Mr. Eisenberg then progresses to specifying the significance leve

A. valuating the goodness of fit

B. ollecting the data and performing the calculations

C. etermining the p-value

D. one of these answers is correct

E. tating the decision rule

F. esting for multicolinearity

View answer

Correct Answer: E

Question #73

Exports of goods (merchandise) and services minus the imports of goods and services equals ________.

A. urrent account

B. alance of merchandise trade

C. alance on current accounts

D. alance on goods and services

View answer

Correct Answer: D

Question #74

What is the range of values for the coefficient of determination?

A. one of these answers

B. to +1 inclusive

C. 1 to +1 inclusive

D. 3 to +3 inclusive

E. AI -1 to 0 inclusive

View answer

Correct Answer: B

Question #75

Within the Keynesian model, when planned aggregate demand equals total output,

A. he employment rate will equal the labor force participation rate

B. overnment expenditures will equal revenues

C. he output level will tend to persist into the future

D. ncome in the future will tend to rise

View answer

Correct Answer: C

Question #76

Standard ________ pertains to fair dealing with customers and clients.

A. II (B)

B. V (3)

C. V (A)

D. (D)

E. one of these answers

View answer

Correct Answer: B

Question #77

According to the AIMR-PPS, terminated portfolios are included in the composite for how long after termination?

A. omposites must include terminated portfolios after the last full performance measurement period the portfolios were under management

B. omposites should include the terminated portfolio only until the date of termination

C. omposites should include the terminated portfolio for the last full performance measurement period under which the portfolios were managed

D. omposites should include the terminated portfolio for the full ten years required by the Standards for performance reporting

View answer

Correct Answer: C

Question #78

A statistician has framed his hypothesis testing problem as:Ho: mean = 100 H1: mean < 100Specify the region for the p-statistic which will lead to the rejection of the null at the 80% significance level.

A. -statistic < -0

B. -statistic > +1

C. -statistic < -1

D. -statistic < -1

View answer

Correct Answer: A

Question #79

Which one of the following is referred to as the population mean?

A. ample

B. -Bar

C. he Greek letter "Mu"

D. tatistic

E. one of these answers

View answer

Correct Answer: C

Question #80

Redeemable preferred stock

A. s reported in stockholders' equity of the balance sheet

B. s reported after liabilities but before the equity section of the balance sheet

C. ust be computed at its market value on the balance sheet

D. as higher priority for liquidation and dividends than preferred stock

E. s required to be listed only as a footnote in the balance sheet

View answer

Correct Answer: B

Question #81

If you have $4,000 in an account today and withdraw $2,000 in 3 years, how much can you withdraw from the account in 5 years, if the account earns interest at 8% per year, compounded annually?

A. 3,544

B. 3,407

C. 3,000

D. 2,000

E. 7,714

View answer

Correct Answer: A

Question #82

The investment community's need for a common, accepted set of guidelines to promote fair representation and full disclosure in every firm's presentation performance results to clients and prospective clients has guided thedevelopment of the

A. IMR Standards for Calculation of Returns

B. IMR Standards of Practice

C. IMR Performance Presentation Standards

D. IMR Performance and Calculation Investment Board

View answer

Correct Answer: C

Question #83

________ accounting is mandatory for fixed-income securities.

A. lexible

B. isky

C. otal

D. qual

E. ccrual

View answer

Correct Answer: E

Question #84

Which of the following is/are FALSE?

A. nterest expenses that are capitalized are charged against investing cash flows

B. , II & IV

C. I & IV

D. I & III

E. II & IV

View answer

Correct Answer: B

Question #85

Standard IV (A.3) relates to two major components, Independence and Objectivity. Under this Standard, modest gifts that do not exceed ________ and entertainment are acceptable, without disclosure.

A. 100

B. ne-twentieth of your annual salary and bonus

C. ne-tenth of your annual salary and bonus

D. 500

E. one of these answers

F. 1,000

View answer

Correct Answer: A

Question #86

When formulating an investment policy for a client, all of the following fall under "investor constraints," except ________.

A. egulatory and legal circumstances

B. ax considerations

C. nvestor preferences, circumstances and unique needs

D. one of these answers

E. he existence of separate beneficiaries

F. nvestable funds

View answer

Correct Answer: E

Question #87

On January 1, 1992, Carter Inc. purchased equipment having an estimated salvage value equal to 20% of its original cost at the end of a 10 year life. The equipment was sold December 31, 1996 for 50% of itsoriginal cost. If the equipment's disposition resulted in a reported loss, which of the following depreciation methods did Carter use?

A. traight-line

B. ouble-declining-balance

C. omposite

D. um-of-the-years'-digits

E. ccelerated

View answer

Correct Answer: A

Question #88

When prices are rising, which of the following inventory valuation methods produces a higher ending inventory value?

A. IFO

B. IFO

C. one of these answers

D. verage cost

View answer

Correct Answer: B

Question #89

Tiarera has just landed a big account for her fund and is in a joyous mood. To celebrate, she decides to go out to a bar with some of her friends and share some drinks. Tiarera, however, has a weak constitution and cannot handle alcohol very well. In fact, many times in the past, she has gotten into drunken altercations at bars. Tonight turns out to be no different; Tiarera and her friends are arrested for disorderly conduct and convicted for misdemeanor. Tiarera has

A. as violated Standard II (B) - Professional Misconduct - because of a pattern of misconduct

B. ot violated any AIMR standard since the arrest was for a misdemeanor, an offense not serious enough to trigger sanctions on the first occurrence

C. as violated Standard II (B) - Professional Misconduct - because she has been involved in a misdemeanor

D. ot violated any AIMR standard since the arrest took place due to activities not related to her work

View answer

Correct Answer: A

Question #90

In a situation where information is costly to acquire and individuals must spend time searching for jobs, which type of unemployment will result?

A. tructural

B. easonal

C. rictional

D. yclical

View answer

Correct Answer: C

Question #91

In a distribution that is right skewed:

A. he median is larger than the mean

B. arge negative deviations dominate large positive deviations

C. he mean is positive

D. arge positive deviations dominate large negative deviations

View answer

Correct Answer: D

Question #92

Which of the following is true about Standard III (B) - Duty to Employer?

A. t prohibits a departing employee from making arrangements to enter independent practice prior to leaving current employment

B. t precludes a member from entering into an independent business that is in direct competition with the employer

C. t requires the employee to obtain written permission from the employer as well as the outside entity before entering independent practice

D. t requires departing employee to give all the details about the independent practice before leaving the current employment

View answer

Correct Answer: C

Question #93

Which of the following statements best describes the relationship between a valuation factor and its effect on the present value of a bond, holding all else constant?

A. sing a lower discount rate will generate a lower present value

B. bond with a lower coupon rate will have a higher present value

C. sing a higher discount rate will generate a lower present value

View answer

Correct Answer: C

Question #94

What monthly payment would repay a $28,500 car loan over 60 months, assuming your loan has an interest rate of 3.9% per year, compounded monthly?

A. 492

B. 764

C. 423

D. 550

E. 523

View answer

Correct Answer: E

Question #95

James Fry, CFA, is evaluating the potential investment merit of Cushing Corporation. Cushing's most recent year's earnings were S5.00 per share, and Cushing paid a dividend of $1.50 per share. Fry forecasts that Cushing will cam $4.70 per share next year. Fry estimates Cushing's future growth rate will be 10%, with a required rate of return of 12%. Based on the information provided, calculate Cushing's leading price to earnings (P/E) ratio. If the required rate of return is increased, indicate whether Cushi

A. he P/E ratio is 15

B. he P/E ratio is 15

C. he P/E ratio is 17

View answer

Correct Answer: C

Question #96

Analysis, Inc. had gross sales of 5,000 last year. Its operating expenses amounted to 339 and cost of goods sold equaled 2,386. Analysis faces a corporate tax rate of 37% and had no other revenues or costs last year.Its net income after taxes was ________.

A. ,647

B. ,433

C. ,275

D. ,308

View answer

Correct Answer: B

Question #97

Chris Renburg owns the following portfolio of option-free bonds:Calculate the duration of Renburg's bond portfolio.

A.

B.

C.

View answer

Correct Answer: B

Question #98

Treasury stock is

A. ssets held for safekeeping in company's vaults

B. company's own stock that it has repurchased

C. etained earnings that have been appropriated to make equity investments

D. nvestments in government securities

View answer

Correct Answer: B

Question #99

Tim Jan, CFA, relies on the earnings multiplier model in performing his fundamental analysis. His model is based on the constant-growth DDM. Jan is evaluating two stocks, A and B, that have the same 10% required rate of return and the same expected growth rate in dividends. Stock A has a higher retention rate than stock B.Which stock should have the higher P/E ratio?

A. tock

B. tock B

C. oth stocks should have the same P/E ratio

View answer

Correct Answer: B

Question #100

If you buy an item for $500 and agree to pay for it with 36 monthly payments of $22.22, beginning next month, what annual interest rate, compounded monthly, are you being charged?

A. 7

B. 4

C. 1

D. 3

E. 6

View answer

Correct Answer: D

Question #101

When preparing a statement of cash flow, one of the relationships between balance sheet changes and cash flows can be summarized as

A. ecreases in liabilities represent net cash inflows

B. ncreases in liabilities represent net cash outflows

C. ncreases in assets represent net cash outflows

D. ecreases in assets represent net cash outflows

View answer

Correct Answer: C

Question #102

Fiduciary duty includes a duty of loyalty and a reasonable standard of ________.

A. are

B. one of these answers

C. rudence

D. ustody

View answer

Correct Answer: A

Question #103

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting periods.

A. o reduce the federal income tax liability

B. o adhere to the concept of conservatism

C. o aid management in the decision-making process

D. o match the costs of production with the revenues as earned

E. o maximize accounting income

View answer

Correct Answer: D

Question #104

Patterson Company has the following information of one of its vehicles purchased on January 1, 1992:Vehicle cost $50,000Useful life, years, estimated 5Useful life, miles, estimated 100,000Salvage value, estimated $10,000Actual miles driven:1992 30,0001993 10,0001994 15,0001995 25,0001996 12,000No estimates were changed during the life of the asset. The 1994 depreciation expense using the sum-of-years'-digits (SYD) method was ________.

A. 13,333

B. 8,000

C. 10,667

D. 10,000

E. 6,000

View answer

Correct Answer: B

Question #105

Which of the following can be found in Standard IV?

A. embers must use the CFA designation in a dignified manner

B. embers shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation

C. embers shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists

D. embers shall maintain knowledge of AIMR's Code of Ethics

E. f members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates

View answer

Correct Answer: B

Question #106

Which of the following can be found in Standard III?

A. embers must use the CFA designation in a dignified manner

B. f members receive material nonpublic information in confidence, they shall not breach that confidence by trading or causing others to trade in securities to which such information relates

C. embers shall maintain knowledge of AIMR's Code of Ethics

D. embers shall comply with any prohibitions on activities imposed by their employer if a conflict of interest exists

E. embers shall make reasonable and diligent efforts to avoid any material misrepresentation in any research report or investment recommendation

View answer

Correct Answer: D

Question #107

Oils Galore is a large firm that prefers to use the Successful Efforts method of accounting. A similar firm, Rival Oil & Gas, Inc., uses the Full Cost method. An inspection of their financial statements would reveal that:

A. ils Galore has a higher debt-to-asset ratio

B. & III

C. I & IV

D. II & IV

E. & II

View answer

Correct Answer: D

Question #108

If all the plots on a scatter diagram lie on a straight line, what is the standard error of estimate?

A. nfinity

B. one of these answers

C.

D. 1

E. 1

View answer

Correct Answer: C

Question #109

How should holdings of equity securities of less than a 20% interest generally be classified on a firm's balance sheet?

A. s either trading or available-for-sale securities

B. sing the equity method

C. ll of these answers

D. s controlling interest securities

E. one of these answers

View answer

Correct Answer: A

Question #110

What is the following table called?Ages Number of Ages20 - 291630 - 392540 - 495150 - 598060 - 692070 - 798

A. one of these answers

B. give

C. istogram

D. requency distribution

E. requency polygon

View answer

Correct Answer: D

Question #111

Variables X and Y are perfectly negatively correlated. Given only this information, if you run a regression of Y against X, which of the following is/are true?

A. he intercept term is zero

B. only

C. II & IV

D. V only

E. & II

F. II only

View answer

Correct Answer: E

Question #112

Standard IV (B.6) deals with ________.

A. reservation of Confidentiality

B. rohibition against Use of Material Nonpublic Information

C. one of these answers

D. isclosure of Referral Fees

E. riority of Transactions

F. isclosure of Conflicts to Clients and Prospects

View answer

Correct Answer: A

Question #113

Stock dividends have the greatest impact on which section of the balance sheet?

A. otal assets

B. otal stockholders' equity

C. otal assets and total stockholders' equity

D. etained earnings

E. he components of stockholders' equity

View answer

Correct Answer: E

Question #114

In the regression equation, what does the letter "b" represent?

A. lope of the line

B. alue of Y when X=0

C. ny value of the independent variable that is selected

D. concept

E. one of these answers

View answer

Correct Answer: A

Question #115

Which of the following can be found in Standard III?

A. embers shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty

B. embers shall maintain knowledge of and comply with all applicable laws

C. embers shall maintain appropriate records to support the reasonableness of recommendations

D. embers shall not participate in plagiarism

E. embers shall not undertake any independent practice in competition with employer without written consent

View answer

Correct Answer: E

Question #116

Jack Cheney purchases an IBM October 80 put contract for a premium of $5. Cheney holds the option until the expiration date when IBM stock sells for $78 per share. At expiration, what is the loss on the contract?

A. $2

B. S3

C. $5

View answer

Correct Answer: B

Question #117

Cariella is a junior analyst who is currently preparing a report on a diamond producing firm, Dense Carbon, Inc. Dense Carbon recently announced that the results of a mining survey in its South African diamond mines were in, which revealed substantial amounts of diamond reserves for the first time. It has offered to take a few industry analysts for a tour of the facilities and take stock of the situation first hand. During this tour, all expenses, including air-fare and basic accommodations, were provided f

A. iolated Standard III (C) - Disclosure of Conflicts to Employer

B. only

C. and III only

D. , II and III only

E. V only

View answer

Correct Answer: B

Question #118

Keynesian analysis implies that

A. lexible wages and prices will quickly direct a market economy to full employment

B. he federal budget should be balanced annually

C. luctuations in aggregate demand are an important source of economic instability

D. luctuations in the money supply are the major source of economic instability

View answer

Correct Answer: C

Question #119

Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct.Cash from operating activities$60,000Net Income(4,000)Depreciation(2,000)Increase in accounts receivable(1,000)Increase in deferred tax liability$53,000Cash from investing activities($48,000)Purchase of marketable securities2,500Dividends received1,500Dividends paid($44,000)Cash from financing activities(500)Increase in Short-term debt(2,500)Increase in Long-term debt($3,000)Increase in cash$6,

A. one of these answers

B. 19,000

C. 15,000

D. 4,000

View answer

Correct Answer: B

Question #120

An analyst has been researching a possible investment in collateralized debt obligations (CDOs). Identify the statement which is most likely correct.

A. he underlying securities for a CDO are typically issued only by U

B. CDO with corporate bonds as the underlying security is known as a collateralized loan obligation (CLO)

C. CDO is typically structured into tranches, similar to a collateralized mortgage obligation (CMO)

View answer

Correct Answer: C

Question #121

With regard to calculation of returns for international portfolios, a consistent source of ________ should be used.

A. xchange rates

B. ettlements

C. rades

D. axes

E. isclosures

View answer

Correct Answer: A

Question #122

An asset with a 10-year life has an acquisition cost of 5,000. The firm, using double declining method of depreciation has an accumulated depreciation of 2,440 at the end of year 3 (verify this!). The depreciation expense in year 4 is equal to ________.

A. 67

B. 30

C. 12

D. 31

View answer

Correct Answer: C

Question #123

Wireless Company received venture capital financing that allowed the company to begin commercial manufacturing. This stage of financing is known as:

A. irst-stage

B. econd-stage

C. hird-stage

View answer

Correct Answer: A

Question #124

If you deposit $400 a month, beginning next month, for 10 years into an account paying 8% per year, compounded monthly, how much is in your account after that last deposit?

A. 18,121,973

B. 73,178

C. 48,000

D. 13,091

E. 88,402

View answer

Correct Answer: B

Question #125

An investor faces the following investment scenarios:Scenario Probability ReturnBull market 60% 30%Neutral market 30% 7%Market crash 10% -25%The investor's expected rate of return is ________.

A. 2

B. 7

C. 6

D. 9

View answer

Correct Answer: B

Question #126

Which measures of central tendency are not affected by extremely low or extremely high values?

A. one of these answers

B. eometric mean and mean

C. ean and mode

D. ode and median

E. ean and median

View answer

Correct Answer: D

Question #127

Which of the following best describes a balance sheet?

A. one of these answers

B. balance sheet reports changes over a period of time in component accounts that comprise the ownership of a firm

C. balance sheet summarizes the financial position of a company at a given point in time

D. balance sheet details the cash inflows and outflows that are related to a company's operating, investing, and financing activities over a period of time

E. balance sheet measures a company's financial performance over a specified period of time

View answer

Correct Answer: C

Question #128

Janice Grass, CFA, created a gourmet baby food line. To get the production lines up and running, she must borrow $12 million. Grass is concerned that the US Federal Reserve (Fed) will raise interest rates dramatically, so she enters into a 2 x 8 FRA agreement. The FRA is quoted at 6%. LIBOR interest rates on the expiration day of the FRA are presented in the table below.Based on the table, calculate the payoff on Grass' transaction.

A.

B. $2,630

C. $2,956

View answer

Correct Answer: A

Question #129

Which of the following can be found in Standard I?

A. embers shall maintain knowledge of and comply with all applicable laws

B. embers shall not undertake any independent practice in competition with employer without written consent

C. embers shall maintain appropriate records to support the reasonableness of recommendations

D. embers shall not participate in plagiarism

E. embers shall make reasonable efforts to achieve public dissemination of material nonpublic information disclosed in breach of a duty

View answer

Correct Answer: A

Question #130

Standard IV (B.3) deals with ________.

A. uty to Employer

B. rofessional Misconduct

C. nteractions with Clients and Prospects

D. one of these answers

E. rohibition against Use of Material Nonpublic Information

F. reservation of Confidentiality

View answer

Correct Answer: A

Question #131

What quarterly deposit do you need to make each quarter, starting next quarter, over the next 10 years in order to have a balance of $15,000 in your account, assuming the account starts with $1,000 in it and that the interest rate is 6% per year, compounded quarterly?

A. 242

B. 1

C. 1,293

D. 203

E. 30

View answer

Correct Answer: A

Question #132

Cash outflows for payment of cash dividends is an example of:

A. ash flows from financing activities

B. ash flows from investing activities

C. ash flows from noncash investing and financing activities

D. ash flows from operating activities

View answer

Correct Answer: A

Question #133

With regard to real estate, all properties must be included in at least one ________.

A. ccount

B. nvestment type

C. omposite

D. ector

E. ortfolios

View answer

Correct Answer: C

Question #134

The opportunity cost of producing a good:

A. enerally decreases as the country produces more and more of the good

B. s not dependent on the marginal cost of producing the good

C. enerally increases as the country produces more and more of the good

D. s usually uniform across countries

E. one of these answers

View answer

Correct Answer: C

Question #135

What is the variable used to predict another variable called?

A. mportant

B. ausal

C. ndependent

D. one of these answers

E. ependent

View answer

Correct Answer: C

Question #136

Compared with firms with capital leases, firms with operating leases generally report

A. ower cash flow from operations

B. ower or higher cash flow from operations depending upon market interest rates

C. igher cash flow from operations

D. dentical cash flow from operations

View answer

Correct Answer: A

Question #137

Peter Ulrich runs a hedge fund which specializes in using option strategies to enhance the fund's returns. In a training session for newly hired analysts, Ulrich explains option characteristics as follows: "The maximum profit on a short call position is always less than the maximum profit on a long call position and a long at-the-money put option position will break even as soon as the price of the underlying stock decreases." Determine whether Ulrich is correct with regard to his statements about call opti

A. lrich is correct regarding call options only

B. lrich is correct regarding put options only

C. lrich is correct regarding both call and put options

View answer

Correct Answer: A

Question #138

The unemployment rate equals the number of persons

A. nemployed divided by the population age 16 and over

B. nemployed divided by the number in the labor force

C. ot working divided by the population age 16 and over

D. nemployed divided by the number employed

View answer

Correct Answer: B

Question #139

Which of the following statements is true?

A. tandard I sets forth minimum standards relating to general activities

B. ll of these statements are correct

C. embers are to be aware of laws and regulations of foreign jurisdictions

D. tandards II through V address specific conduct

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

F. embers are to comply with the laws and regulations of foreign jurisdictions

View answer

Correct Answer: B

Question #140

A large group of inductees was given a mechanical aptitude and a finger dexterity test. The mean score on the mechanical aptitude test was 200, with a standard deviation of 10. The mean and standard deviation for the finger dexterity test were 30 and 6 respectively. What is the relative dispersion in the two groups?

A. echanical 5 percent, finger 20 percent

B. echanical 500 percent, finger 200 percent

C. echanical 20 percent, finger 10 percent

D. echanical 50 percent, finger 200 percent

E. one of these answers

View answer

Correct Answer: A

Question #141

A reserve requirement of 12.5 percent implies a potential money deposit expansion multiplier of ________.

A.

B. 2

C. 5

D.

View answer

Correct Answer: A

Question #142

A cumulative frequency distribution on days absent during a calendar year by employees of a manufacturing company is shown below.Days Absent Cumulative Number of Employees0 - 2603 - 5316 - 8149 - 11612 - 142How many employees were absent more than five days?

A. 4

B.

C. one of these answers

D. 2

E. 1

View answer

Correct Answer: A

Question #143

A bond does not pay initial coupon payments but instead accrues them over a pre-determined period and then pays a lump sum at the end of that period. The bond subsequently pays regular coupon payments until maturity. Such a bond is best described as:

A. step-up note

B. zero-coupon bond

C. deferred-coupon bond

View answer

Correct Answer: C

Question #144

The cumulative effect of changing to a new accounting principle on the amount of retained earnings at the beginning of the period in which the change is made should be included in net income of ________.

A. he period of change and future periods

B. he period of change

C. uture periods

D. one of these answers

E. either future periods nor the period of change

View answer

Correct Answer: B

Question #145

Which of the following methods is the best way of conducting a comparative financial statement analysis?

A. omparing of a company's balance sheet to its income statement

B. ll of these methods are equally good

C. reak-even analysis

D. n index-number trend series analysis

E. cash flow forecast

View answer

Correct Answer: D

Question #146

The U.S. Federal Aviation Administration reported that passenger revenues on international flights increased from $528 million in 1972 to $5,100 million in 1995. What is the geometric mean annual percent increase in international passenger revenues?

A. one of these answers

B. 7

C.

D. 03

E. 0

View answer

Correct Answer: E

Question #147

What does a coefficient of correlation of 0.70 mean?

A. oefficient of determination is 0

B. lmost no correlation because 0

C. 0% of the variation in one variable is explained by the other

D. oefficient of nondetermination is 0

E. one of these answers

View answer

Correct Answer: A

Question #148

The value of a real estate portfolio requires, at minimum, ________ review.

A. eekly

B. uarterly

C. aily

D. onthly

E. nnual

View answer

Correct Answer: B

Question #149

A firm has 400 preferred stocks outstanding. It started the year with 900 common stocks and over the year, had the following transactions:Feb 15 Issued 300 common shares.May 1 Redeemed 100 preferred shares.Aug 15 Repurchased 150 common shares.Nov. 30 Issued 400 common shares.In the calculation of EPS, the number in the denominator would be closest to:

A. 440

B. 140

C. 220

D. 540

View answer

Correct Answer: B

Question #150

Roland Cad owns a portfolio of large capitalization stocks. He has a positive long term outlook for the stock market, but Carl is worried about the possible effects of recent changes in monetary policy. Carl would like to protect his portfolio from any sudden declines in the stock market, without selling his holdings. The most likely way for Carl to achieve his objective of limiting the downside risk of his portfolio is to:

A. ell put options on the S&P 500

B. ell an S&P 500 futures contract

C. uy an S&P 500 forward contract

View answer

Correct Answer: B

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