CFA Level 1 Exam Materials, Online Practice Exam

Question #1

On June 30, 1996, Union Inc. purchased goodwill for $125,000 when it acquired the net assets of Apex Corp. During 1996, Union incurred additional costs of developing goodwill by training Apex employees ($50,000) and hiring additional Apex employees ($25,000). Before amortization of goodwill, Union's December 31, 1996 balance sheet should report goodwill of ________.

A. 150,000

B. 200,000

C. 75,000

D. 175,000

E. 125,000

View answer

Correct Answer: E

Question #2

Misrepresentation of performance is prohibited by section ________ of the Standards of Professional Conduct.

A. I (E)

B. II (F)

C. (B)

D. V (E)

E. II (A)

View answer

Correct Answer: C

Question #3

A critical part of Standard IV (A.2) is to distinguish between:

A. uy side and sell side

B. ndustry and company analysis

C. nsider trading and appropriate trading

D. esearch reports and investment memoranda

E. mployees and independent contractors

F. FA charterholders and non-CFA charterholders

View answer

Correct Answer: A

Question #4

According to Standard IV (B.4), Priority of Transactions, ________ is recommended when a manager has purchased a security in violation of trading policy.

A. orfeit of wages for one month

B. fine imposed by the SEC

C. civil damage

D. ublic censure

E. isgorgement

View answer

Correct Answer: E

Question #5

An investor purchases oil commodity futures contracts worth $25 million and an equal amount of 10-year Treasury notes with an interest rate of 3.5%. Assuming that oi! prices rise by 10% and the price of the notes remains unchanged, the total return of the position after three months is closest to:

A. 2,500,000

B. 2,600,000

C. 2,700,000

View answer

Correct Answer: C

Question #6

A firm follows LIFO accounting. Its inventory accounts for a period showed the following sequential accounts:Beginning inventory of 50 units, purchased at $550 units purchased at $1035 units purchased at $925 units sold at $1570 units sold at $12Tax rate = 40%Beginning LIFO reserve = $300Then, the net income of the firm using LIFO is ________.

A. 285

B. 210

C. 198

D. 350

View answer

Correct Answer: B

Question #7

A stock has the following returns over 4 years: +5%, -6%, +8%, +3%. The annual arithmetic and geometric rates of return over the 4 years are:

A. %; 5

B.

C. 0%; 9

D.

View answer

Correct Answer: D

Question #8

James Morrison is a profit-seeking banker. His bank has $25 million in excess reserves. Mr. Morrison

A. an probably increase his profits by increasing his excess reserves

B. annot affect his profits by changing the amount of excess reserves held by his bank

C. annot change excess reserves held by his bank because this level is set and strictly enforced by the Fed

D. an probably increase his profits by reducing his excess reserves

View answer

Correct Answer: D

Question #9

A bell-shaped, symmetrical frequency distribution has a mean of 45. If 95% of the observations on the variable fall between 30 and 60, the standard deviation of the variable is:

A.

B.

C. nsufficient information

D. 5

View answer

Correct Answer: B

Question #10

A firm's quick ratio equals 1.31 and its cash ratio equals 1.19. If the firm has receivables of 693, its current liabilities equal ________.

A. ,129

B. ,693

C. ,775

D. ,926

View answer

Correct Answer: C

Question #11

What quarterly payment would you have to make to pay off a $5,000 debt in 7 years, assuming the first payment is made 3 months from today and interest accrues at 6% per year, compounded quarterly?

A. 220

B. 72

C. 145

D. 372

E. 757

View answer

Correct Answer: A

Question #12

Companies reporting consolidated cash flows using the direct method must report all of the following cash receipts except for:

A. ther operating cash receipts, if any

B. ash from customers, including lessees, licensees and similar

C. epayments of funds from foreign subsidiaries

D. nterest and dividend payments received

View answer

Correct Answer: C

Question #13

Investments in available-for-sale securities should be valued on the balance sheet at ________.

A. mortized cost

B. ower of cost or market for the portfolio

C. ower of cost or market for individual securities

D. air value

E. cquisition cost

View answer

Correct Answer: D

Question #14

If a distribution is heavily right or left skewed, which of the following statistics should not be used as a measure of central tendency?

A. kewness

B. ean

C. edian

D. ode

View answer

Correct Answer: B

Question #15

Meriam Mastrani is a senior member of "The Seven Samurai," a high-flying hedge fund. Meriam supervises a group of 6 portfolio managers and is also involved in advising some independent clients. To prevent violations of securities laws at the firm, Meriam has instituted some standard procedures in conjunction with the Compliance Department. However, for the past 6 months, he has been extremely busy catering to his clients to be able to check on the weekly compliance reports. Meriam does not have a deputy who

A. as not violated any standard in the AIMR code of ethics

B. iolated Standard III (B) - Duty to the Employer

C. iolated Standard III (E) - Responsibilities of Supervisors

D. one of these answers

View answer

Correct Answer: C

Question #16

If you deposit $300 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. 38,444,973

B. 30,000

C. 54,883

D. 3,091

E. 58,402

View answer

Correct Answer: C

Question #17

The semi-logarithmic scale is so named because:

A. alues on the x-axis are equally spaced if their logarithms are the same

B. alues on the y-axis are equally spaced if their logarithms are the same

C. alues on the x-axis are equally spaced if there are equal differences in their logarithms

D. alues on the y-axis are equally spaced if there are equal differences in their logarithms

View answer

Correct Answer: D

Question #18

Standard III (B) deals with ________.

A. se of Professional Designation

B. undamental Responsibilities

C. rofessional Misconduct

D. isclosure of Conflicts to Employer

E. one of these answers

F. uty to Employer

View answer

Correct Answer: F

Question #19

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$14,000>, Year 1:$5,000, Year 2: $4,000, Year 3: $5,000, Year 4 a negative number).

A. 0

B. 1

C. 2

D. 5

E. 0

View answer

Correct Answer: B

Question #20

A variable, W, is normally distributed with a mean of 12. 68% of its observations lie between 8 and 16. The coefficient of variation of W is ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #21

Under adaptive expectations, a shift to a more expansionary macroeconomic policy will

A. educe unemployment in both the short and long run

B. ail to systematically reduce unemployment in either the short run or long run

C. educe unemployment in the short run but not in the long run

D. educe unemployment in the long run but not in the short run

View answer

Correct Answer: C

Question #22

Which of the following revenue recognition methods would generally be considered the most conservative?

A. rder receipt method

B. nstallment method

C. ompletion of production

D. ost recovery method

View answer

Correct Answer: D

Question #23

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 depreciation expense of $275 in its income statement, cash paid for amortization is ________.

A. 75

B. 525

C. ot determinable

D. 0

View answer

Correct Answer: D

Question #24

Carlson Jewelers permits the return of their diamond wedding rings, provided the return occurs within two weeks of the purchase date. Their records reveal that 10 percent of the diamond wedding rinds are returned. Five rings are bought by five different customers. What is the probability that none will be returned?

A.

B.

C.

D.

E.

View answer

Correct Answer: B

Question #25

What is the standard error of estimate?

A. ased on squared vertical deviations between Y and Y'

B. one of these answers

C. easure of the accuracy of the prediction

D. annot be negative

E. ll of these answers

View answer

Correct Answer: E

Question #26

In a period of rising prices, the inventory method that gives the lowest possible value for ending inventory is:

A. ross profit

B. IFO

C. IFO

D. eighted average

View answer

Correct Answer: B

Question #27

With regard to a theoretical Treasury yield curve constructed with the bootstrapping method:

A. very point on the curve is constructed by utilizing current on-the-run Treasury yields of various maturities

B. he yield for most maturities used to construct the Treasury yield curve are observed yields rather than interpolated yields

C. ny yield on the Treasury yield curve that is not one of the on-the-run maturities is only an approximation for that maturity

View answer

Correct Answer: C

Question #28

The main purpose of the statement of financial position is to reflect

A. he market value of the firm's assets at some point in time

B. he status of the firm's assets in case of forced liquidation of the firm

C. tems of value, debts and net worth

D. one of these answers

E. he firm's potential for growth in stock values in the stock market

View answer

Correct Answer: C

Question #29

Christine Crumbwell and Dorothy Drummond are two portfolio managers with Neptune Funds. Cristine is managing the personal trust fund of Paul Roker, who created the fund as an income support for his wife and a legacy for his two sons after his wife's death. Dorothy is in charge of a fund created by Katey Koric. Katey had started this fund as a long-term investment but recently decided to shift the asset mix toward municipal and high-income bonds. Her friend pointed out a great investment opportunity in the n

A. orothy has violated Standard IV (B

B. , II and III

C. and II only

D. only

E. I only

View answer

Correct Answer: D

Question #30

Which of the following about Free Cash Flows (FCFs) is TRUE?

A. CF = Cash from operations - outlays for replacement of used capacity

B. CF = Cash from operations - outlays for maintenance of current capacity - dividends declared

C. CF = Cash from operations - outlays for dividend payments and scheduled debt retirement

D. CF = Net Income + Non-cash expenses

View answer

Correct Answer: B

Question #31

A bell-shaped, symmetrical frequency distribution has a mean of 5 and a standard deviation of 2.5. The percentage of observations less than zero is about:

A. annot be calculated

B. %

C. 0%

D.

View answer

Correct Answer: D

Question #32

A national manufacturer of unattached garages discovered that the distribution of the lengths of time it takes two construction workers to erect the Red Barn model is approximately normally distributed with a mean of 32 hours and a standard deviation of 2 hours. What percent of the garages take between 32 and 34 hours to erect?

A. 6

B. one of these answers

C. 6

D. 4

E.

View answer

Correct Answer: D

Question #33

Which of the following are considered when applying generally accepted accounting principles.

A. hen income is recognized as earned

B. ow assets are measured

C. ll of these answers are correct

D. hen expenses and losses accrue

E. hen liabilities are incurred

View answer

Correct Answer: C

Question #34

Which of the following is the formula for the correlation between X and Y?

A. ov(X,Y)/[(sigma_X)*(sigma_Y)]^2

B. Cov(X,Y)]^0

C. sigma_X)*(sigma_Y)/Cov(X,Y)

D. ov(X,Y)/[(sigma_X)*(sigma_Y)]

View answer

Correct Answer: D

Question #35

Jay Simpson was recently convicted of a felony in the state of California. Jay is a resident of Arizona, where he conducts all his business. The felony conviction resulted from activities not related to his primary business. With regard to standard II.B-Professional Misconduct, Jay has:

A. iolated the standard since felony convictions are considered professional misconduct

B. ot violated the standard since the conviction occurred in a non-resident state

C. ot violated the standard since AIMR does not impose sanctions for felony convictions

D. ot violated the standard since the conviction is for non-business activities

E. one of these answers

View answer

Correct Answer: A

Question #36

Metals Inc. had the following liabilities at December 31, 1996:Accounts payable $55,000Unsecured notes, 8%, due 7/1/97 $400,000Accrued expenses $35,000Contingent liability $450,000Deferred income tax liability $25,000Senior bonds, 7%, due 3/31/97 $1,000,000The contingent liability is an accrual for possible losses on a $1,000,000 lawsuit filed against Metals Inc. Metals' legal counsel expects the suit to be settled in 1998 and has estimated that Metals will be liable for damages in the range of $450,000 to

A. one of these answers

B. 1,490,000

C. 940,000

D. 515,000

E. 1,515,000

View answer

Correct Answer: B

Question #37

Performance results for a portfolio need to be presented with cash, ________ equivalents, or substitute assets.

A. ultiple

B. omposite

C. verage

D. ash

View answer

Correct Answer: D

Question #38

A firm has just acquired a long-term asset with a useful life of 5 years. Its acquisition cost was $65,000 and its salvage value is estimated at $10,000. If the firm uses straight-line depreciation method, what's the depreciation expense recognized in Year 3?

A. 10,600

B. 14,500

C. 11,000

D. 13,000

View answer

Correct Answer: C

Question #39

The two primary qualities of accounting information to make it useful for decision-making are ________.

A. ateriality and comparability

B. ull disclosure and relevance

C. eliability and comparability

D. elevance and reliability

View answer

Correct Answer: D

Question #40

Lynn Smith, CFA, and a marketing associate have a disagreement over whether the stock market is truly efficient. The marketing associate believes that the stock market is totally efficient based on academic research that shows actively managed mutual funds do no better than a buy-and-hold strategy. Thus, he invests solely in index funds. Smith counters that academic research indicates that low P/E ratio stocks provide superior risk- adjusted returns. Based on this discussion, indicate which of the following

A. he strong form of the EMH is supported by academic research on low P/E stocks

B. he semistrong form of the EMH is not supported by academic research on low P/E stocks

C. he strong form of the EMH is not supported by academic research on mutual funds

View answer

Correct Answer: B

Question #41

Wolfram Hitchwalker is a money manager with Armadillo Investments. He currently manages a few retirement accounts, clients who have a steady current income need and are averse to capital loss. Wolfram recently read a research report which concluded that the stock of HighFly, Inc. was a great buy because of a pending expansion plan into Southeast Asia which would double the profits of HighFly from foreign operations. Wolfram decided that the analysis was sound and that his clients could gain significantly if

A. ot violated any code of ethics since the investment was wise and made his clients better off

B. I and IV only

C. II and IV only

D. only

E. I only

F. V only

View answer

Correct Answer: A

Question #42

Under the current US GAAP, the treatment of R&D expenses:

A. nderestimates current income and leads to lower taxes

B. only

C. one of these are correct

D. , II & III

E. & II

View answer

Correct Answer: C

Question #43

Another name for "covered" person is ________.

A. uardian

B. one of these answers

C. mbudsman

D. ccess person

E. iduciary

F. upervisor

View answer

Correct Answer: D

Question #44

Which of the following statements are correct?

A. company's choice of accounting principles for financial reporting purposes does not affect net cash flow for the accounting period

B. and III

C. , II and III

D. I and IV

E. and IV

View answer

Correct Answer: A

Question #45

Which of the following is NOT true about the responsibilities of a member with supervisory duties, as specified by Standard III (E) - Responsibilities of Supervisors?

A. ompliance activities must be designed to anticipate the activities most likely to result in misconduct

B. ompliance procedures must meet industry and regulatory standards

C. he supervisor is always accountable for the violations committed by those who report to him

D. f a member cannot discharge supervisory responsibilities due to an absence of compliance system, he or she should decline to accept the duties in writing till such a system is put into effect

View answer

Correct Answer: C

Question #46

If you deposit $2,000 today, how much will you have in 3 years, if interest is earned at a rate of 8% per year, compounded annually?

A. 2,519

B. 2,576

C. 2,400

D. 3,121

E. 2,614

View answer

Correct Answer: A

Question #47

A firm using LIFO accounting has a LIFO reserve of 600, with a LIFO ending inventory of 4,900. It is currently in the 40% tax bracket. If it switches to FIFO accounting, it's equity ________.

A. ecreases by 240

B. ecreases by 360

C. ncreases by 360

D. ncreases by 240

View answer

Correct Answer: C

Question #48

If an overstatement of depreciation by 100 and an understatement of accounts receivables by 40 causes a firm's net income to be understated by 70, the firm's tax rate is ________.

A. 5%

B. 0%

C. 0%

D. 0%

View answer

Correct Answer: D

Question #49

Property, Plant & Equipment has all of the following characteristics except:

A. hey are intended for use in operating activities, and are not acquired for sale in the ordinary course of business

B. hey are classified as noncurrent tangible assets

C. heir service potential diminishes with use

D. hey don't typically make up a large part of a corporation's operating assets

View answer

Correct Answer: D

Question #50

Suppose that stocks A, B, C, and D are independent with respect to their price movement, and have probabilities of increasing of 0.25, 0.50, 0.40, and 0.30. What is the probability that stocks A and C will increase in price? In other words, find P(AC).

A.

B. 1%

C. 0%

D.

View answer

Correct Answer: C

Question #51

The following information was taken from the accounting records of Boston Corp. for the year ended December 31, 1996 (in $000):Proceeds from issuance of preferred stock F$4,000Dividends paid on preferred stock F400Bonds payable converted to common stock NC2,000Payment for purchase of machinery I500Proceeds from sale of plant building I1,2002% stock dividend on common stock NC300Gain on sale of plant building I200The net cash flows from investing and financing activities that should be presented on Boston's

A. 700 and $3,600

B. 700 and $3,900

C. 700 and $4,000

D. 900 and $3,900

E. 900 and $3,600

View answer

Correct Answer: A

Question #52

Which of the following is/are true about expenses?

A. &D expenses must always be capitalized

B. , II & III

C. I & III

D. II only

E. only

View answer

Correct Answer: B

Question #53

In the country of Merlenia, authorities require that tax reports and financial reports be identical. In Merlenia, there will be:

A. o recognition of deferred taxes

B. prevalence of LIFO accounting

C. o advantage to capitalizing a lease

D. o off-Balance-sheet financing

View answer

Correct Answer: A

Question #54

Which of the following is a definition of inflation:

A. pervasive increase in pricesII

B. I, IV

C. , II, III, IV

D. , II, III

E. I only

F. , III

View answer

Correct Answer: C

Question #55

________ provide a relative measure for the riskiness of a strategy.

A. olatility measures

B. enchmarks

C. ndexes

D. nvestor universes

E. isclosures

View answer

Correct Answer: B

Question #56

A trial generates only two results, "success" and "failure." The variance of the number of failures in 20 trials equals 2.35. The probability of success on a given trial equals ________.

A.

B.

C.

D.

View answer

Correct Answer: B

Question #57

Standard IV (B.4), Priority of Transactions, suggests implementing "________" in certain organizations to limit the number of access persons.

A. ag Orders

B. imit Orders

C. oison Pills

D. oken Confines

E. ences

F. ire Walls

View answer

Correct Answer: F

Question #58

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

A. IFO

B. verage cost

C. one of these answers

D. IFO

View answer

Correct Answer: A

Question #59

Morgan Inc. was organized on January 2, 1997 with the following capital structure:10% cumulative preferred stock, par value $100 and liquidation value $105; authorized, issued and outstanding 1,000 shares, $100,000Common stock, par value $25; authorized 100,000 shares;Issued and outstanding 10,000 shares, $250,000Morgan had net income of $450,000 for its first year, but no dividends were declared. How much was Morgan's book value per common share at December 31, 1997?

A. 68

B. 70

C. 25

D. 45

E. 69

View answer

Correct Answer: A

Question #60

Which of the following are notations for the covariance between X and Y?

A. ov(X,Y)

B. only

C. I only

D. and II

E. and III

View answer

Correct Answer: C

Question #61

If alpha = .05, what is the probability of making a Type I error?

A. one of these answers

B. 0/20

C.

D. 9/20

E. /20

View answer

Correct Answer: E

Question #62

Your investment rate of return is 6% per year and you invest according to the following schedule:Beginning of year 1: $100Beginning of year 2: $200Beginning of year 3: $300Beginning of year 4: $400The amount you will have at the end of year 4 is:

A. 1,125

B. 640

C. 808

D. 845

View answer

Correct Answer: A

Question #63

Firms with records or performance calculations for periods prior to the applicable effective date(s) that are not in conformance with the AIMR Performance Presentation Standards can still claim compliance with the standards if certain conditions are met. Which of the following is an option available to such a firm?

A. one of these answers are options available to such a firm

B. ll of these answers are options available to such a firm

C. he firm can restate its historical performance in accordance with the Relaxed Retroactive Standards for retroactive compliance

D. he firm can use its nonconforming historical performance and disclose specifically when and how the performance is not in compliance

E. he firm can restate its historical performance numbers in accordance with the Standards

View answer

Correct Answer: B

Question #64

A sample of the personnel files of eight male employees revealed that during a six month period, they lost the following number of days due to illness: 2, 0, 6, 3, 10, 4, 1 and 2. What is the mean deviation (in days)?

A. 3/8

B. one of these answers

C.

D.

E. 1/8

View answer

Correct Answer: A

Question #65

Level II verifiers must obtain and review ________ to ensure proper recording of cash flows.

A. nd of period returns

B. ccounting methods

C. ank reconciliation

D. ash flow statements

View answer

Correct Answer: C

Question #66

In a period of falling prices, the FIFO inventory method

A. either of these answers is correct

B. oth of these answers are correct

C. agnifies the effects of the business cycle on income

D. ives the lowest possible value for ending inventory

View answer

Correct Answer: B

Question #67

Extraordinary items are presented on the income statement:

A. et of taxes, separate from income from continuing operations

B. n the footnotes, with the required disclosures

C. s part of income from continuing operations, before taxes

D. one of these answers

View answer

Correct Answer: A

Question #68

What monthly payment, beginning next month, would repay a $25,000 car loan over 60 months, assuming your loan has an interest rate of 6.9% per year, compounded monthly?

A. 1,757

B. 493

C. 843

D. 1,789

E. 650

View answer

Correct Answer: B

Question #69

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$15,000>, Year 1:$8,000, Year 2: $8,000, Year 3: $1,000, Year 4: $4,000 (Note that the <> are used to indicate a negative number).

A. 6

B. 7

C. 8

D. 5

E. 3

View answer

Correct Answer: C

Question #70

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

A. urchase of an office building

B. ains on asset sales

C. ividends received from investments in stocks

D. akeovers financed partly with cash

View answer

Correct Answer: C

Question #71

If the Fed wanted a more expansionary monetary policy, which of the following would be most appropriate?

A. educe taxes

B. ncrease government expenditures

C. uy government bonds from the public

D. aise the discount rate

View answer

Correct Answer: C

Question #72

When the output of an economy exceeds the economy's full-employment capacity, then

A. ggregate supply will increase until the economy can produce the output at the existing price level

B. ggregate demand will decline until full-employment equilibrium is restored at a lower price level

C. nemployment will exceed the economy's natural unemployment

D. ages and prices will rise until full employment is restored at a higher price level

View answer

Correct Answer: D

Question #73

How much would you need to deposit today in order to be able to withdraw $500 in 2 years and $700 in 4 years, if the account has nothing in it today and interest is 6% per year, compounded annually?

A. 999

B. 1,007

C. 445

D. 1,200

E. 950

View answer

Correct Answer: A

Question #74

What is the area under the normal curve between z = -1.0 and z = -2.0?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: D

Question #75

The government currently has no debt. To alleviate an economic slow down, Congress proposes an increase in spending partially offset by an increase in the highest marginal tax rate. This will force the Treasury to issue new debt. According to which of the following economic theories would this stimulate the economy?

A. iscal policyII

B. one of these answers is correct

C. only

D. , II, III

E. I only

F. I, III

View answer

Correct Answer: B

Question #76

The flow of money for the purpose of taking advantage of a covered interest differential is known as ________.

A. n outright swap

B. overed interest differential

C. he swap rate

D. overed interest arbitrage

E. nterest rate parity

View answer

Correct Answer: D

Question #77

Which of the following is an integral part of the Keynesian view of the business cycle?

A. quilibrium is a state of full employment without inflation

B. ultiplier effects magnify the impact of changes in aggregate demand (especially in investment) and thereby promote economic instability

C. hanges in private consumption are the major source of economic instability

D. upply creates its own demand

E. alling wage rates eventually lead the economy back to full employment

View answer

Correct Answer: B

Question #78

Armina Stump is a junior portfolio manager on the verge of a promotion at Black Stallion, a strongly bullish fund management firm. Armina reports to Brouster Bragg, who has been with the firm for about 8 years. Brouster has been busy over the past 6 months and has not been able to keep up with account reviews but has complete faith in his subordinate managers. Now that it's time for Armina's promotion, he has been going over her transactions in the past 6 months and has discovered that all her trades are go

A. rmina has violated Standard I - Fundamental Responsibilities by not filing the reports on time

B. and II only

C. I and III only

D. I only

E. , II and III

View answer

Correct Answer: C

Question #79

For accounting purposes, which of the following is/are TRUE about assets?

A. ssets are future benefits whose values are known today

B. , II, III & IV

C. , II & IV

D. I only

E. & II

View answer

Correct Answer: C

Question #80

Standard I deals with ________.

A. se of Professional Designation

B. uty to Employer

C. bligation to Inform Employer of Code and Standards

D. rofessional Misconduct

E. lagiarism

F. undamental Responsibilities

View answer

Correct Answer: F

Question #81

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: A

Question #82

If a firm's profit margin increases by 8%, the debt-to-equity ratio increases from 35% to 55% and its asset turnover falls by 20%, the effect on its ROE is ________.

A. 1

B. 0

C. 0

D. 1

View answer

Correct Answer: C

Question #83

Suppose a research firm conducted a survey to determine the average amount of money steady smokers spend on cigarettes during a week. A sample of 500 steady smokers revealed that the sample mean is $20 and the sample standard deviation is $5. What is the point estimate?

A. 20

B. one of these answers

C. 25

D. 0

E. 5

View answer

Correct Answer: A

Question #84

Stewart has been hired by Goodner Industries, Inc., to manage its pension fund. Stewart's fiduciary duty is owed to:

A. he management of Goodner

B. he participants and beneficiaries of Goodner's pension plan

C. he shareholders of Goodner

D. ach of these answers equally

View answer

Correct Answer: B

Question #85

Frank Holmes, CFA, is reviewing Martha Inc, a distributor. Holmes is interested in the company's European- style call option, which has a value of $5.90. Currently, Martha's stock is trading at $33 per share and pays no dividend. The exercise price of both the call and put options is $30, with 80 days to expiration. The current risk- free rate is 5.50%. Martha's put option sells for $2.75. Calculate the synthetic call option value.

A. 3

B. 5

C. 6

View answer

Correct Answer: C

Question #86

Swiss Inc. had the following activities during 1996:Acquired 2,000 shares of stock in Molly Inc. for $26,000.Sold an investment in General Motors for $35,000 when the carrying value was $33,000.Acquired a $50,000, 4-year certificate of deposit from a bank. (During the year, interest of $3,750 was paid to Swiss.)Collected dividends of $1,200 on stock investments.In Swiss's 1996 statement of cash flows, net cash used in investing activities should be ________.

A. 37,250

B. 76,000

C. 41,000

D. 39,800

E. 38,050

View answer

Correct Answer: C

Question #87

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

A. xpected cash flows

B. ype and nature of clients

C. egulatory and legal circumstances

D. nvestor preferences, circumstances and unique needs

E. iquidity needs

F. one of these answers

View answer

Correct Answer: B

Question #88

Parts of the standards that are ________ must be observed.

A. ecommended

B. uggested

C. andatory

D. estraining

E. nhibiting

View answer

Correct Answer: C

Question #89

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. one of these answers

C.

D. 0

View answer

Correct Answer: C

Question #90

A firm has convertible bonds, preferred equity, common equity and straight bonds in its capital structure. Its net income equals 7,800. The interest payments on straight debt equal 423 and that on convertible debt equals 680. The preferred equity holders received 220 in dividends. If the weighted number of shares for Diluted EPS equals 1,300 and the firm is in the 40% tax bracket, the Diluted EPS equals _________. Assume the convertibles are dilutive.

A.

B.

C.

D.

View answer

Correct Answer: B

Question #91

You are given a risk-free rate of 7% per year, a portfolio return of 19% per year, and a standard deviation of portfolio return of 12% per year. What is the Sharpe measure of risk-adjusted performance?

A.

B.

C.

D.

View answer

Correct Answer: C

Question #92

In a beer taste study involving the ExtraFerm lager beer, the following responses were recorded:Response FrequencyGreat taste 103Okay taste 46Bad taste 64The probability that a randomly selected beer drinker will NOT find ExtraFerm to be bad tasting is calculated from these data to be:

A.

B.

C.

D.

View answer

Correct Answer: C

Question #93

What value does the null hypothesis make a claim about?

A. one of these answers

B. opulation parameter

C. ample mean

D. ype II error

E. ample statistic

View answer

Correct Answer: B

Question #94

Consider two options, X and Y. Option X has a strike price of S40 and is selling in the marketplace for $4. Option Y has a strike price of $32 and is selling in the market place for $3. The underlying assets for the options, Stock X and Stock Y, have a current market price of $43 and $29, respectively. Which of the following are most likely TRUE about Option X and Option Y?

A. ption X is an expiring call, and option Y is an in-the-money put

B. ption X is an in-the-money put, and option Y is an expiring call

C. ption X is an in-the-money call, and option Y is an expiring put

View answer

Correct Answer: C

Question #95

The sum of the squares of 65 observations equals 862. The sum of the observations equals 93. The samplestandard deviation of the observations equals ________.

A. 1

B.

C.

D.

View answer

Correct Answer: C

Question #96

ERISA fiduciaries must adhere to the following prudent procedures:- establish a ________ 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 prohibited transactions

A. upervisory

B. one of these answers

C. ritten

D. iversified

View answer

Correct Answer: C

Question #97

A selected group of employees of Unique Buying Services is to be surveyed with respect to a new pension plan. In depth interviews are to be conducted with each employee selected in the sample. The employees are classified as follows.Classification Event Number of EmployeesSupervisors A 120Maintenance B 50Production C 1,460Management D 302Secretarial E 68What is the probability that the first person selected is in management AND in supervision?

A.

B. one of these answers

C.

D.

E.

View answer

Correct Answer: A

Question #98

Which of the following is correct?

A. ithout tariff protection the number of jobs available to domestic workers would decline

B. ess than 5 percent of world output is sold in a country different from the one in which it is produced

C. xports represent about 30 percent of U

D. egarding international trade, if one country gains, another country must lose

E. he volume of international trade has grown rapidly in recent decades

View answer

Correct Answer: E

Question #99

What is the present value today of these annual cash flows: $1,000, $2,000, $3,000? Assume the first cash flow occurs 1 year from today and an interest rate of 10% per year, compounded annually.

A. 2,304

B. 2,754

C. 4,815

D. 4,000

E. 4,104

View answer

Correct Answer: C

Question #100

The simple or linear annualized short-term interest rate is calculated according to:

A. ultiply the annual rate by the length of the period in months

B. ivide the annual rate by the length of the period in months

C. ultiply the annual rate by the length of the period, as a proportion of a year

D. ultiply the annual rate by the length of the period as a percentage of six months

E. ivide the annual rate by the length of the period as a proportion of the year

View answer

Correct Answer: C

Question #101

Given the following points: (-2, 0), (-1,0), (0,1), (1, 1) and (2, 3) What is the slope of the regression line?

A. one of these answers

B.

C.

D.

E.

View answer

Correct Answer: E

Question #102

Which of the following regarding bond market indexes is FALSE?

A. nlike stocks, bonds lack continuous price trading data

B. he bond universe is more stable than the stock universe

C. here are more bond issues than stocks

D. he price volatility of bonds is constantly changing due to the influence of maturity and market yield on bond durations

View answer

Correct Answer: B

Question #103

In a large metropolitan area, past records revealed that 30 percent of all the high school graduates go to college. From 20 graduates selected at random, what is the probability that exactly 8 will go to college?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: A

Question #104

How much must you deposit today if you wish to have $60,000 in 10 years, assuming that interest accumulates at 10%, compounded annually?

A. 20,153

B. 21,500

C. 9,143

D. 26,474

E. 23,132

View answer

Correct Answer: E

Question #105

An increase in the expected future inflation rate will:

A. ove the short-run supply curve to the left

B. ove the short-run supply curve to the right

C. ove the long-run supply curve to the right

D. ove the long-run supply curve to the left

View answer

Correct Answer: A

Question #106

Over a given year, a firm's total assets increased by $8,000 and total liabilities decreased by $6,000. If the firm did not issue any new equity and paid out $1,800 in dividends, then its net income during the year was ________.

A. 12,200

B. 200

C. 3,800

D. 15,800

View answer

Correct Answer: D

Question #107

The following data are available for a firm for a given year:Net Sales 21,896Sales & marketing expenses 4,346Administrative expenses 2,143COGS 10,084Depreciation 967Interest expense 573Tax rate 35%Dividends paid 3,445Preferred Dividends 897Average total equity 37,432Average common equity 26,782Average total liabilities 18,583The firm's gross profit margin equals ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #108

A survey of 144 retail stores revealed that a particular brand and model of a VCR retails for $375 with a standard deviation of $20. What is the 95% confidence interval to estimate the true cost of the VCR?

A. 328

B. 323

C. 335

D. 335

E. one of these answers

View answer

Correct Answer: C

Question #109

When prices are falling, which of the following is/are true?

A. IFO results in higher current assets

B. I & III

C. I, III & IV

D. & IV

E. I only

View answer

Correct Answer: A

Question #110

Contingent losses are generally recognized when they are ________.

A. easurable

B. robable and measurable

C. easurable and realized

D. robable

View answer

Correct Answer: B

Question #111

In a rebuttal to comments made by Dilbertico's fundamental analyst, Keith Howard states that future changes in stock prices cannot be predicted based on a company's institutional ownership. State which form of the efficient market hypothesis (EMH) Howard's statement supports and also state a type of empirical study which tests that form of the EMH.

A. eak form of the EMH and trading rulestest

B. emistrong form of the EMH and trading rules test

C. emistrong form of the EMH and event study

View answer

Correct Answer: C

Question #112

Sara Jones, CFA, recently purchased a U.S. government security that was issued on 6/1/2007 and will mature on 6/1/2014. Jones purchased the security in the secondary market. This security is most likely an:

A. n-the-run Treasury note

B. ff-the-run Treasury bond

C. ff-the-run Treasury note

View answer

Correct Answer: C

Question #113

Under Standard III (E) - Responsibilities of Supervisors - which of the following are NOT employees that are covered under this standard?

A. evel I CFA candidates

B. FA charterholders

C. one of these answers

D. on AIMR members

E. FA candidates

F. IMR members

View answer

Correct Answer: D

Question #114

What is the annual Internal Rate of Return of this series of annual cash flows: Year 0: <$25,000>, Year 1:$2,000, Year 2: $0, Year 3: $15,000, Year 4 to indicate a negative number).

A. 0

B. 5

C. 1

D.

E.

View answer

Correct Answer: E

Question #115

If a firm uses discretionary leverage, it must present performance using:

A. ll-cash basis i

B. oth actual returns and all-cash basis

C. one of these answers

D. ctual returns

View answer

Correct Answer: B

Question #116

Judging from recent experience, 5 percent of the worm gears produced by an automatic, high speed machine are defective. What is the probability that out of six gears selected at random, exactly zero gears will be defective?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: C

Question #117

BeigeBox, a computer manufacturer, can construct computer systems with any one of 4 processors, 2 memory configurations, 3 hard drives, 2 monitors, 2 keyboards, and 2 CD drives. How many unique configurations of computer systems can BeigeBox construct?

A. 92

B. 6

C. 84

D. 4

View answer

Correct Answer: A

Question #118

Standard II includes rules on which of the following?

A. rofessional Misconduct

B. rohibition against Plagiarism

C. ll of these answers

D. se of Professional Designation

View answer

Correct Answer: C

Question #119

All of the following are financing cash flows EXCEPT?

A. ash payments on preferred dividends

B. ash received from new debt

C. ash changes in contributed capital from equity issue

D. ash changes in retained earnings

View answer

Correct Answer: D

Question #120

________ permits the producers of each nation to concentrate on the things they do best while trading for those things they do least well.

A. one of these answers

B. tariff

C. quota

D. rade

View answer

Correct Answer: D

Question #121

The following asset is subject to the least amount of depreciation or amortization during its useful life:

A. and

B. arehouse

C. atents

D. omputer-based equipment

View answer

Correct Answer: A

Question #122

Which type of revenue recognition method(s) is used when there is uncertainty regarding the amount or collectibility of future cash flows?

A. ercentage-of-completion and installment methods

B. ompleted contract method

C. nstallment and cost recovery methods

D. nstallment method

E. ompleted contract and cost recovery methods

View answer

Correct Answer: C

Question #123

Revenues of an entity are usually measured by the exchange values of the assets or liabilities involved.Recognition of revenue does not occur until

A. he entity has substantially accomplished what it is agreed to do

B. he revenue is realizable

C. one of these answers

D. roducts or services are exchanged for cash or claims to cash

E. he revenue is realized and earned

View answer

Correct Answer: E

Question #124

Under what condition would a firm report cash, or cash equivalents as a long-term asset?

A. hen a firm maintains less than its' minimum target cash balance

B. hen funds are set aside for a specific long-term purpose such as plant expansion

C. ll of these answers

D. hen a firm has an under-funded pension obligation

E. one of these answers

View answer

Correct Answer: B

Question #125

A histogram is best described as:

A. collection of frequency classes in which the raw data are arranged

B. bar chart of relative frequencies

C. scatter plot of the raw data on the X-Y plane

D. visual representation of a frequency distribution

View answer

Correct Answer: D

Question #126

Which of the following best describes a firm's book value of its common stock?

A. he amount of retained earnings of a firm minus any authorized but unissued preferred stock

B. one of these answers

C. ll of these answers

D. he total number of common shares of a firm that are outstanding multiplied by the present price that the firm's stock is selling for

E. he total assets of a firm less liabilities and any claims senior to common stock that is reported on a firm's balance sheet

View answer

Correct Answer: E

Question #127

You can enter a derivative contract that will pay $100 at the end of a year if the price of corn exceeds $3 per bushel, or $50 if it is equal to $3 per bushel or lower. The probability that corn will exceed $x by the end of one year is 50%. The current price of the contract is $60, and interest is 5% per year. What is the optimal strategy?

A. ell the derivative contract short if corn prices rise

B. nvest $60 at 5% until the end of the year

C. uy $3 per bushel worth of corn futures

D. nter into the derivative contract for a cost of $60

View answer

Correct Answer: D

Question #128

Douglas Morin is discussing market efficiency with some college students who are visiting his firm. Morin states that market efficiency would increase if the cost of trading decreases, if the cost of information decreases, and if arbitrageurs had less capital. Morin is least likely to be correct in his opinion about:

A. he cost of trading

B. he cost of information

C. rbitrageurs

View answer

Correct Answer: C

Question #129

According to Keynesians, which of the following is/are true?

A. ages and prices are flexible and automatically direct an economy toward full employment

B. , II & III

C. II only

D. & II

E. I & III

View answer

Correct Answer: D

Question #130

Which of the following would affect both net income and cash flow from operations?

A. redit sale to a customer

B. ale of marketable security for a gain

C. nterest payment on capitalized interest

D. one of these answers

View answer

Correct Answer: D

Question #131

Standard V of the Standards of Professional Conduct deals with Relationships with and Responsibilities to ________.

A. upervisors

B. mployers

C. mployees

D. he Investing Public

E. one of these answers

View answer

Correct Answer: D

Question #132

To claim compliance, firms must meet

A. ll composite, calculation, presentation and disclosure requirements of the AIMR Performance Presentation Standards

B. ll composite, calculation, presentation and disclosure recommendations of the AIMR Performance Presentation Standards

C. ll composite, calculation, presentation and disclosure requirements and recommendations of the AIMR Performance Presentation Standards

D. ll composite, calculation, presentation and disclosure requirements and at least half of the recommendations of the AIMR Performance Presentation Standards

View answer

Correct Answer: A

Question #133

What is the present value today of these annual cash flows: $2,500, $1,200, $300? Assume the first cash flow occurs 1 year from today and an interest rate of 9% per year, compounded annually.

A. 3,535

B. 4,000

C. 3,976

D. 3,608

E. 3,114

View answer

Correct Answer: A

Question #134

A firm has 1,000 common shares valued at 30 each outstanding. It has also issued 500 preferred shares of face value 100 and a coupon of 5% and a debt of 50,000 with a coupon rate of 6%. The firm's net income after taxes is 14,300. Then, the EPS reported by the firm is ________.

A.

B. 1

C. 4

D.

View answer

Correct Answer: B

Question #135

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 net cash flow from financing?

A. 6,000

B. $17,000)

C. 3,000

D. $14,000)

View answer

Correct Answer: D

Question #136

Edward Witten works for Princeton Investments and has registered to take Level III exam next year. He had taken the Level III exam 3 years ago but was not successful. In his firm's promotional material, he has stated that he is a candidate in the CFA program and has successfully passed Level II. Edward has:

A. iolated Standard II (A) - Use of Professional Designation

B. iolated Standard II (A) - Use of Professional Designation

C. ot violated any standards

D. iolated Standard II (A) - Use of Professional Designation

View answer

Correct Answer: C

Question #137

If an analyst is trying to estimate the value of a stock, using the formula E(Y | E) = [y_1 * P(y_1 |E) + y_2 * P (y_2|E) + ... y_n * P(y_n|E), the analyst is making use of:

A. ubjective probability

B. he multiplication rule for independent events

C. nconditional expectation

D. onditional expectation

View answer

Correct Answer: D

Question #138

When comparing the riskiness of investments with different expected returns, one must use ________.

A. one of these answers

B. kewness

C. he coefficient of variation

D. he standard deviation

E. urtosis

View answer

Correct Answer: C

Question #139

The Income Summary account

A. s used to facilitate the closing process

B. ll of these answers are correct

C. s a temporary account

D. hould have a zero balance at period-end

View answer

Correct Answer: B

Question #140

Which of the following is considered a characteristic of equity?

A. one of these answers

B. ll forms of equity must ultimately be repaid by a business

C. ompensation to the holders of equity takes precedence over that required to the holders of liabilities

D. quity represents the residual ownership of a business

E. quity represents a claim against a business that is senior to liabilities

View answer

Correct Answer: D

Question #141

What deposit would you need to make today in order to withdraw $200 a month, beginning next month, for the next 5 years, if the deposit will accrue interest at 8% per year, compounded monthly?

A. 7,237

B. 9,863

C. 11,492

D. 8,399

E. 9,141

View answer

Correct Answer: B

Question #142

Which of the following is/are true about turnover ratios?

A. high receivables turnover ratio might imply overly lax credit policy

B. I only

C. , II & III

D. & II

E. & III

View answer

Correct Answer: A

Question #143

The following account is affected when recording a return of inventory to the vendor under a perpetual inventory system:

A. erchandise inventory

B. ash

C. ccounts receivable

D. urchase returns and allowances

View answer

Correct Answer: A

Question #144

Sixty percent of the customers of a fast food chain order the Whopper, fries and a drink. If a random sample of 15 cash register receipts is selected, what is the probability that 10 or more will show that the above three food items were ordered?

A.

B. one of these answers

C. ,000

D.

E.

View answer

Correct Answer: D

Question #145

A normal distribution has a mean of -10.8 and a variance of 723.6. The probability that a value from this distribution will be between -25 and + 25 equals ________.

A.

B.

C.

D.

View answer

Correct Answer: C

Question #146

If the alternate hypothesis specifies a particular direction for the population parameter, it is appropriate to use:

A. z-statistic test

B. stratified sampling test

C. one-tailed test

D. two tailed test

View answer

Correct Answer: C

Question #147

If AIMR Members, CFA Charterholders and Candidates do not follow the AIMR Performance Presentation Standards and they make material misrepresentations, they will be in violation of what Standard of Professional Conduct?

A. tandard V (A)

B. one of these answers

C. tandard I

D. tandard V (B)

View answer

Correct Answer: D

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