CFA Level 1 Exam Resources, Free Exam Questions PDF

Question #1

Basic earnings per share is calculated as:

A. Net Income- Dividends]/Weighted Avg # of shares outstanding

B. Net Income-Preferred Dividends]/Weighted Avg # of common shares outstanding

C. Net Income]/[Common shares outstanding]

D. Net Income-Preferred Dividends]/[Weighted Avg # of common shares outstanding] - EPS impact of diluted convertibles

View answer

Correct Answer: B

Question #2

In the presentation of real estate performance, disclose any changes in ________, including unrealized gainsand losses.

A. ccounting

B. nvestment earnings

C. aluation

D. udit practices

E. ash flow

View answer

Correct Answer: C

Question #3

Current liabilities are defined as those that come due:

A. ithin a year

B. he shorter of "within an operating cycle" or "within a year

C. ithin an operating cycle

D. he longer of "within an operating cycle" or "within a year

View answer

Correct Answer: D

Question #4

A firm's financial statements reveal the following data:operating profit margin 41%interest expense ratio 4.2%debt-to-equity ratio 0.45total asset turnover 1.6tax rate 45%The firm's ROE equals ________.

A. 8

B. 8

C. 9

D. 3

View answer

Correct Answer: B

Question #5

Chan and Chung are two of the five Managing Directors of Alfalfa, a mid-size hedge fund. In a recent court case involving a securities lawsuit, Chan was called on to testify as an expert on securities research. During his testimony, Chan had to invoke several results from a proprietary research carried out by his staff at Alfalfa. He did so without specifically attributing the results to them. At around the same time, Chung had to meet with a few prospective clients for a business presentation. During this

A. either Chan nor Chung has violated the standard

B. han has not violated the standard while Chung has

C. oth Chan and Chung have violated the standard

D. han has violated the standard while Chung has not

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Correct Answer: D

Question #6

Calculate the book value per share of General Industries common stock, given the following information. Par value of common stock, $1 per share; total assets, $12,565,000; retained earnings, $5,550,000; total liabilities, $5,012,500; number of common shares outstanding, 475,000; number of preferred shares outstanding, 0.Market value of common stock, $96.25.

A. 26

B. 96

C. one of these answers

D. 15

E. 10

View answer

Correct Answer: D

Question #7

Which of the following is a false statement?

A. PI is calculated using a market basket of consumer goods

B. PI is a broad measure of prices throughout the economy

C. he GDP deflator is used to calculate real GDP from nominal GDP

D. oth CPI and the GDP deflator suffer from substitution bias

E. he CPI and the GDP deflator tend to move in the same direction

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Correct Answer: B

Question #8

At the end of the fiscal period, the account debited to show the estimated amount of uncollectible accounts is

A. llowance for Uncollectible Accounts

B. one of these answers is correct

C. ccounts Receivable

D. ad Debt Expense

E. nearned Revenue

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Correct Answer: D

Question #9

Standard III (E) is known as ________.

A. rohibition against Use of Material Nonpublic Information

B. reservation of Confidentiality

C. air Dealing

D. rofessional Misconduct

E. nteractions with Clients and Prospects

F. nvestment Process

View answer

Correct Answer: A

Question #10

Which of the following statements clearly conflicts with the recommended procedures for compliance presented in AIMR's Standards of Practice Handbook?

A. nvestment recommendations may be changed by an analyst without prior approval of a supervisory analyst

B. rior approval must be obtained for the personal investment transactions of all employees

C. or confidentiality reasons, personal transactions should not be compared with those of clients or the employer unless requested by regulatory organizations

D. ersonal transactions should be defined as including transactions in securities owned by the employee and member of his or her immediate family and transactions involving securities in which the employee has beneficial interest

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Correct Answer: C

Question #11

A firm has preferred equity outstanding but has not declared payment of dividend on it. If the firm's net income is 1000 and there are 100 common shares outstanding, the firm's Basic EPS is ________.

A. qual to 10

B. nsufficient information

C. ess than 10

D. ore than 10

View answer

Correct Answer: C

Question #12

Within the simple Keynesian model, when an economy operates below its long-run, full employment output constraint, an increase in aggregate demand will lead to an

A. ncrease in unemployment

B. ncrease in prices

C. ncrease in interest rates and money income, but employment and real income will remain constant

D. ncrease in employment, output and real income

View answer

Correct Answer: D

Question #13

A distribution has a mean of 7 and a range of -100 to +50. The distribution is ________.

A. ncomplete

B. ight skewed

C. efective

D. eft skewed

View answer

Correct Answer: D

Question #14

What is the future value of $750 per year for 6 years, with the first cash flow occurring today, rather than 1 year from now? Assume interest is 7% per year, compounded annually.

A. 5,364

B. 4,500

C. 5,740

D. 6,209

E. 5,293

View answer

Correct Answer: C

Question #15

What is the remaining balance on a $90,000 loan after making monthly payments of $660.39 for 10 years, if the interest rate is 8% per year, compounded monthly?

A. 51,948

B. 81,343

C. 0

D. 76,204

E. 78,951

View answer

Correct Answer: E

Question #16

Which of the following is/are true about computation of Basic EPS?

A. eacquired shares are excluded from the date of acquisition

B. only

C. I & III

D. & II

E. , II & III

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Correct Answer: A

Question #17

Two firms, Groening Inc. and Shearer Co., have just completed simultaneous bond issuances. Both issues have a stated coupon rate of 5%, pay interest semiannually, and have a face value of $i,000 per bond. The Groening and Shearer issues both have a maturity of 15 years and their duration is approximately the same. If the Groening bond have a higher convexity measure than the Shearer bonds, which issuance will sell for the higher price?

A. roening, since the bonds will depreciate less in a period of rising interest rates

B. roening, since the bonds will depreciate less in a period of falling interest rates

C. hearer, since the bonds will depreciate less in a period of rising interest rates

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Correct Answer: A

Question #18

When the FIFO method is used, ending inventory units are priced at the:

A. one of these answers

B. ost recent price

C. he average price

D. arliest price

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Correct Answer: B

Question #19

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, while stocks B and D fail to increase?

A. 1%

B.

C.

D. 0%

View answer

Correct Answer: C

Question #20

Mayberry's Mayor, in consultation with the trustees of Mayberry's Village Investment Fund, has decided that the fund needs to become more aggressive in its investment objectives to generate funds for village renovations like a paved road, a new school and an activity center for kids. He discussed these requirements with the plan manager, Otis, and asked him to suggest a suitable risk profile and investment instruments to achieve the objectives within a year. Barney, a businessman from a neighboring town, is

A. arney has violated the Code of Ethics by discussing the plans with Otis

B. I only

C. II only

D. and II only

E. only

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Correct Answer: A

Question #21

To fulfill the basic provisions of Standard IV (B.2), a member should ________.

A. tay free of all conflicts of interest

B. evelop an investment policy statement for each client

C. iscuss the proxy voting policy with management

D. isclose to clients, all additional compensation agreements

E. isclose all soft dollar arrangements

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Correct Answer: B

Question #22

Which of the following is not a theoretical basis for the allocation of expenses?

A. rofit maximization

B. ystematic allocation

C. one of these answers

D. ause and effect

E. mmediate recognition

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Correct Answer: A

Question #23

Which of the following is /are true?

A. oubling every single value in a sample doubles the sample median

B. I only

C. only

D. only

E. & III

F. I only

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Correct Answer: A

Question #24

Quasar, Inc., currently shows assets worth 5,000 and a debt of 1,500. During the year, it capitalized interest expense worth 300, of which 60 was amortized. Quasar's tax rate is 50%. If it had expensed the interest paid, which of the following would be true?

A. ts operating cash flow would be lower by 150

B. ts tax expense would be lower by 150

C. ts equity would be higher by 300

D. ts operating cash flow would be lower by 300

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Correct Answer: A

Question #25

What does the complement rule state?

A. (A) = 1 - P(not A)

B. one of these answers

C. (A) = P(A) - P(B)

D. (A) = P(A) x P(B)

E. (A) = P(A) + P(B)

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Correct Answer: A

Question #26

How much must you deposit today if you wish to have $20,000 in 10 years, assuming that interest accumulates at 9% per year, compounded annually?

A. 2,000

B. 9,104

C. 8,448

D. 7,236

E. 7,103

View answer

Correct Answer: C

Question #27

The primary cause of frictional unemployment is

A. he presence of legislated high minimum wages that price unskilled workers out of the market

B. iscouraged workers who quit looking for a job after extended periods of unsuccessful job search

C. naccurate and costly information about job opportunities

D. igh unemployment benefits that reduce the incentive of unemployed workers to search for employment

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Correct Answer: C

Question #28

Which of the following is/are true about monetary policy?

A. he money supply is neutral in the long-run

B. , II, III

C. II only

D. only

E. , III

F. one of these answers is correct

View answer

Correct Answer: C

Question #29

If one or more numbers in a dataset are negative, which of the following is not always defined?

A. ean

B. edian

C. eometric mean

D. ode

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Correct Answer: C

Question #30

Assume you buy a car for $20,000 today and agree to pay $200 a month, beginning next month, for 4 years with a final payment also due 4 years from today to pay off any remaining balance. How large will that final payment be, if interest accrues at 5.9% per year, compounded monthly?

A. 19,590

B. 24,280

C. 19,204

D. 10,400

E. 14,511

View answer

Correct Answer: E

Question #31

Smirlee Montero is a fixed income analyst at a small investment firm. She has been studying the subject of "Body Language" in order to gauge the effectiveness of reading into the dispositions of people. Based on her own empirical tests carried out over the past two years involving 64 different subjects, she has concluded that during the meetings with analysts, a senior management official is usually more excited and waves hands quite often when the information like earnings report (which is released a coupl

A. iolated Standard IV (1) - Reasonable Basis and Representations by using a non-conventional and controversial technique

B. iolated Standard IV (A

C. iolated Standard V (A) - Prohibition against use of Material, Non-Public Information

D. as not violated any Standards

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Correct Answer: D

Question #32

A firm issued 2 million warrants with an exercise price of 102 on June 15, 1996. The maximum price of the stock in 1996 was 129, the average price was 110. The stock closed out the year at 99. How many additional shares must be used in the computation of Diluted EPS as a result of these warrants?

A. 11,782

B. 45,454

C. 8,788

D. ero

View answer

Correct Answer: C

Question #33

The price for French francs is $0.1945-67. What is the percent spread for this currency?

A.

B.

C. 1

D.

E. 1

View answer

Correct Answer: B

Question #34

Which of the following is/are assumptions of a linear regression?

A. or every given value of the independent variable, the dependent variable is normally distributed

B. & III

C. I & III

D. II only

E. & II

F. I only

View answer

Correct Answer: A

Question #35

Ned Jameson. CFA, is considering the purchase of a newly issued asset-backed security (ABS) for his fixed income portfolio. According to the broker/dealer offering the bond, the OAS for the issue is 75 basis points (bps). Based on the OAS value, which of the following assumptions can Jameson make about this particular ABS?

A. he OAS represents the investor's compensation for credit risk, liquidity risk, and option risk

B. he bond is trading at a yield that is more than 75 bps higher than a Treasury security with a comparable maturity

C. he implied cost of an option embedded in the security is always equal to the difference between the OAS and the Treasury spread

View answer

Correct Answer: B

Question #36

According to the FASB conceptual framework, which of the following situations violates the concept of reliability?

A. inancial statements include property with a carrying amount increased to management's estimate of market value

B. one of these answers

C. inancial statements are issued 9 months late

D. ata on segments having the same expected risks and growth rates are reported to analysts estimating future profits

E. anagement reports to stockholders regularly refer to new projects undertaken, but that financial statements never report project results

View answer

Correct Answer: A

Question #37

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 = $300Given the above, the net income using Average Cost method is ________.

A. 279

B. 224

C. 381

D. 249

View answer

Correct Answer: A

Question #38

Melissa Hart, a quantitative analyst with the Kansas City Federal Reserve, has been involved with accumulating data for an essay regarding economic conditions in her area. Specifically, Melissa has been gathering data related to the levels of consumer debt in the state of Missouri. The following is a description of the data:Sample mean: $3,451.00Standard deviation of the sample: $819Number of observations: 441Assume that Ms. Hart formulates a hypothesis test in which the null hypothesis specifies that the p

A. he answer cannot be determined from the information provided

B. 39

C. 1

D. 39

E. 39

F. 1

View answer

Correct Answer: E

Question #39

GAAP requires that:

A. ash flows from interest related inflows and outflows on debt be considered investing cash flows

B. ash flows from dividend receipts be considered investing cash flows

C. ll of these answers

D. one of these answers

View answer

Correct Answer: D

Question #40

The statement of cash flows provides us with important clues on all of the following except:

A. inancial practices of management

B. rojected changes for the following year in current liability accounts

C. easibility of financing capital expenditures

D. bility to meet debt service requirements

View answer

Correct Answer: B

Question #41

To test whether small-cap stocks perform worse than large stocks under the Fama-French three-factor model, you set up the following hypothesis:Ho: Expected excess returns of small stocks = 0H1: Expected excess returns of small stocks < 0The excess returns are returns adjusted for risk using the Fama-French three-factor model. In this setup, which of the following is/are true?

A. ou must employ a right-tailed test

B. I only

C. & III

D. I & III

E. one of these answers

F. only

View answer

Correct Answer: A

Question #42

If the Fed starts following a contractionary monetary policy:

A. he U

B. , II & III

C. & III

D. I only

E. I & III

View answer

Correct Answer: B

Question #43

Which one of the following would be classified as employed?

A. n auto worker vacationing in Florida during a layoff at a General Motors plant due to an annual change- over in models

B. parent who works 50-60 hours per week caring for family members

C. 21-year-old full-time college student

D. 17-year-old high school student who works six hours per week as a route person for the local newspaper

View answer

Correct Answer: D

Question #44

A random sample of 85 group leaders, supervisors, and similar personnel revealed that on the average a person spent 6.5 years on the job before being promoted. The standard deviation of the sample was 1.7 years. Using the 0.95 degree of confidence, what is the confidence interval within which the population mean lies?

A.

B.

C. one of these answers

D.

E.

View answer

Correct Answer: E

Question #45

You are examining a group of 3 stocks within an industry. The industry average debt-to-equity ratio is expected to be 40%. For these stocks, the average debt-to-equity ratios have been 50%, 40%, and 30%. What is the mean absolute deviation of debt-to-equity ratios from the industry average?

A. 3

B.

C. 0

D. %

View answer

Correct Answer: B

Question #46

An organization purchased a computer on January 1, 1996 for $108,000. It was estimated to have a 4- year useful life and a salvage value of $18,000. The double-declining-balance method is to be used. The amount of depreciation to be reported for the year ending December 31, 1996 is ________.

A. $108,000 - 18,000) (25% X 2)

B. $108,000) (25% X 2)

C. $108,000 - 18,000) (25% X 1/2)

D. $108,000) (25%)

E. $108,000) (25% X 1/2)

View answer

Correct Answer: B

Question #47

What is the following table called?Number of Heads Probability of Outcome01/8 = 0.12513/8 = 0.37523/8 = 0.37531/8 = 0.125Total 8/8 = 1.000

A. give

B. tandard deviation

C. robability distribution

D. one of these answers

E. requency table

View answer

Correct Answer: C

Question #48

Kevin wants to retire a millionaire. If he is 45 years old today and already has $80,000 in the bank, what monthly deposit would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

A. 1,028

B. 1,760

C. 407

D. 1,138

E. 2,119

View answer

Correct Answer: A

Question #49

Level ________ verification applies to the firm.

A. I

B. V

C.

D. II

E.

View answer

Correct Answer: C

Question #50

Which value of r indicates the strongest correlation than 0.40?

A. 0

B. 0

C.

D. 0

E. one of these answers

View answer

Correct Answer: B

Question #51

Which of the following AIMR Standards states that the financial analyst shall distinguish between facts and opinions in research reports?

A. II A

B. II D

C. II (B

D. V (A

View answer

Correct Answer: D

Question #52

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. & IV

E. I, III & IV

View answer

Correct Answer: D

Question #53

In a purely floating exchange rate economy, a shift toward a more expansionary fiscal policy will move the capital account toward a ________. The current account will move toward a ________.

A. urplus, surplus too

B. urplus, deficit

C. eficit, surplus

D. eficit, deficit too

View answer

Correct Answer: B

Question #54

JonesCorp just entered into a plain vanilla interest rate swap as the fixed-rate receiver. The swap has a tenor of four years and makes payments quarterly on a netted basis. At the time the swap was initiated the LIBOR term structure was flat causing LIBOR to be equal to the swap fixed rate. Under which of the following circumstances would JonesCorp be required to make a future net payment to the swap counterparty?

A. he LIBOR term structure becomes upward sloping

B. he LIBOR term structure remains flat but shifts down

C. he LIBOR term structure becomes downward sloping

View answer

Correct Answer: A

Question #55

Rich owns a shoe factory. He believes that a recent monetary policy announcement will cause 5% inflation over the next year, equally effecting the price of shoes, the cost of inputs, and wages. How will Rich change his production plans considering this forecast?

A. e will try to hide this information from his laborers

B. annot determine, this depends on how much prices actually inflate over the next year

C. e will increase shoe production because the expansionary monetary policy should boost consumer confidence and hence shoe demand

D. o changes

E. e will increase shoe production to take advantage of higher prices

View answer

Correct Answer: D

Question #56

Standard IV (A.3) relates to two major components and is titled Independence and ________.

A. bjectivity

B. one of these answers

C. mpartiality

D. utonomy

E. ustice

View answer

Correct Answer: A

Question #57

If an auditor issues an "adverse opinion" qualification in her opinion, she is referring to the fact that:

A. he firm's financial statements do not fairly represent the company's financial performance and position

B. here is considerable uncertainty in the firm's asset-liability valuation, thus causing a concern about its operational health

C. he firm has inadequate controls in place and needs an on-going, frequent audit

D. he firm's liquidity is in jeopardy and the firm may not survive for long

View answer

Correct Answer: A

Question #58

Standard III (D) deals with ________.

A. rofessional Misconduct

B. se of Professional Designation

C. lagiarism

D. undamental Responsibilities

E. one of these answers

F. bligation to Inform Employer of Code and Standards

View answer

Correct Answer: E

Question #59

The marketing department of a nationally known cereal maker plans to conduct a national survey to find out whether or not consumers of flake cereals can distinguish one of their favorite flake cereals. To test the questionnaire and procedure to be used, eight persons were asked to cooperate in an experiment. Five very small bowls of flake cereals were placed in front of a person. The bowls were labeled A, B, C, D, and E. The person was informed that only one bowl contained his or her favorite flake cereal.

A.

B.

C.

D. one of these answers

E.

View answer

Correct Answer: A

Question #60

Fiscal policy designed to increase aggregate demand during economic downturns and decrease aggregate demand during economic booms is called

A. xpansionary fiscal policy

B. upply-side fiscal policy

C. ew classical fiscal policy

D. ounter-cyclical fiscal policy

View answer

Correct Answer: D

Question #61

Financial accounting data has some inherent limitations. Which of the following are limitations?

A. ot all economic events are easily quantifiableII

B. I, III and IV

C. , II and III

D. , III and IV

E. , II, III and IV

View answer

Correct Answer: D

Question #62

A stock has the following returns over 3 years: +2%, +15%, +25%. The annual geometric rate of return over the three years is ________.

A.

B. 9

C. 1

D.

E. 2

F. 0

View answer

Correct Answer: A

Question #63

If the Central Bank wishes to diminish unemployment, it would attempt to ________ the money supply by ________ short-term interest rates.

A. ecrease, increasing

B. tabilize, decreasing

C. tabilize, increasing

D. ncrease, decreasing

E. ncrease, increasing

F. tabilize, stabilizing

View answer

Correct Answer: D

Question #64

What is the Net Present Value of this series of annual cash flows using an interest rate of 15% per year: Year0: <$25,000>, Year 1: $5,000, Year 2: $0, Year 3: $30,000? (Note that the <> are used to indicate a negative number).

A. 14

B. $926

C. 258

D. $291

E. $204

View answer

Correct Answer: B

Question #65

Which of the following will result in an insider trading prosecution?

A. tippee trades based on inside information, not knowing that the source of the information has actually received the information illegally and has breached fiduciary duty to the shareholders by leaking it

B. only

C. II only

D. , II and III

E. I and III only

View answer

Correct Answer: D

Question #66

If prices in two countries are rising at the same annual rate, then the prices of imports and exports will:

A. ncrease in the country with the more valuable currency and decrease in the country with the less valuable currency

B. ncrease relative to domestically produced goods

C. ecrease relative to domestically produced goods

D. one of these answers

E. emain unchanged relative to domestically produced goods

View answer

Correct Answer: E

Question #67

Which of the following would affect the comparability of accounting information for a given company from one accounting period to the next?

A. hange in accounting principlesII

B. , III and IV

C. and III

D. , II and III

E. and II

View answer

Correct Answer: C

Question #68

Which of the following is true?

A. DP = GNP + (income of citizens received for factors of production supplied abroad) - (income paid to foreigners for their contribution to domestic output)

B. he GDP is always larger than GNP since it includes the output produced by foreign nationals living in the country

C. he GNP is always larger than GDP since it includes the income by the country's citizens living abroad

D. NP = GDP + (income of citizens received for factors of production supplied abroad) - (income paid to foreigners for their contribution to domestic output)

View answer

Correct Answer: D

Question #69

The domestic demand Q for a good X at a price P is given by Q = 400 - 2P while the supply function is given by 100 + 4P. The world price for good X is 45 in international markets. All quantities are in thousands of units. If the government imposes a tariff of 5% on imports, the imports will fall by:

A.

B. 3

C. 6

D. 9

View answer

Correct Answer: C

Question #70

What can we say if the coefficient of determination is 0.94?

A. irection of relationship is positive

B. 4% of total variation in one variable is explained by variation in another variable

C. ll of these answers are correct

D. trength of relationship is 0

E. one of these answers is correct

View answer

Correct Answer: B

Question #71

If you were to receive $100 per year for the next 10 years, starting today, and the discount rate applicable is 9% per year, what's the value of this stream of cash flows to you?

A. 700

B. 600

C. 678

D. 642

View answer

Correct Answer: A

Question #72

The primary purpose of the statement of cash flows is to

A. tate the company's financial position at period-end

B. easure the change in the company's assets

C. rovide information about a company's cash receipts and cash payments during the accounting period

D. nalyze net income during the accounting period

View answer

Correct Answer: C

Question #73

Which of the following is/are true?

A. t is harder to reject the null under a two-tailed test than under a one-tailed test

B. , II, III & IV

C. one of these answers

D. , II & III

E. , II & IV

F. I, III & IV

View answer

Correct Answer: D

Question #74

Which of the following is NOT an operating efficiency ratio?

A. sset turnover

B. quity turnover

C. ales-to-assets ratio

D. perating profit margin

View answer

Correct Answer: D

Question #75

Bart Wiggum believes the current level of the S&P 500 index reflects all public information. To convince his supervisor of his hypothesis, Wiggum has downloaded a daily price series for the S&P 500 index for the period 1950 to 2007. Which of the following tests can be used to test Wiggum's belief about public information?

A. uns test

B. utocorrelation test

C. arnings surprise test

View answer

Correct Answer: C

Question #76

Rob Ealey, CFA, has just purchased an option-free bond with a 6.50% coupon that is currently selling at 94.73 to yield 7.25%. If yields increase by 50 bps, the new price of the bonds would be 91.41, and if yields decrease by 50 bps the new price of the bond would be 98.20. Determine the approximate new price of the bond if yields decrease by 75 basis points.

A. 9

B. 9

C. 04

View answer

Correct Answer: B

Question #77

Stockholders' equity may contain all of the following components, except:

A. inimum pension liability

B. inority interests in consolidated subsidiaries

C. mployee Stock Option Plan accruals

D. reasury stock

E. einvested earnings

View answer

Correct Answer: B

Question #78

Ben Click is analyzing an equity security using price-to-earnings, price-to-sales, price-to-book value, and price- to-cash flow ratios. Which statement correctly identifies a drawback of using one of the listed ratios?

A. arning power is a chief driver of investment value

B. ccounting effects may compromise the use of book value

C. ales are generally less subject to distortion or manipulation than are other fundamentals

View answer

Correct Answer: B

Question #79

Which of the following is/are FALSE under GAAP?

A. he change in cash balances in consecutive Balance sheets equals the operating cash flow of the firm over that period

B. , II & III

C. I & IV

D. , II & IV

E. , II, III & IV

View answer

Correct Answer: A

Question #80

What annual interest rate, compounded annually, will cause a deposit of $850 to become $1,475 in 10 years?

A.

B.

C.

D.

E.

View answer

Correct Answer: A

Question #81

Trisdale is a portfolio manager who has consistently outperformed the market on a risk-adjusted basis for the past 3 years. As an appreciation for his work, one of his clients recently gave him a travel package to Vancouver worth around $5,000. Trisdale informed his supervisor about this gift and then took time off from work to enjoy a vacation in Vancouver. Trisdale has

A. iolated Standard III (D) - Disclosure of Additional Compensation Arrangements

B. iolated Standard IV (A

C. ot violated the AIMR code of ethics

D. iolated Standard IV (B

View answer

Correct Answer: C

Question #82

A new extended life light bulb has an average service life of 750 hours, with a standard deviation of 50 hours. If the service life of these light bulbs approximates a normal distribution, about what percent of the distribution will be between 600 hours and 900 hours?

A. 5%

B. 8%

C. one of these answers

D. 4%

E. 9

View answer

Correct Answer: E

Question #83

Which of the following statements is the best description of the ability of arbitrageurs to correct market anomalies?

A. nly the more significant mispricing may be exploited while others are allowed to persist

B. here is a high degree of reliability that apparent mispricing will be corrected

C. nvestors supply largely unlimited amounts of capital to arbitrageurs because of the reliability of the returns

View answer

Correct Answer: A

Question #84

An appreciation of the U.S. dollar

A. s the same thing as an increase in the domestic price level

B. ncreases the purchasing power of the U

C. ecreases the purchasing power of the U

D. s the same thing as a decrease in the consumer price level

View answer

Correct Answer: B

Question #85

Level I verification requires independent attestation that the requirements of the AIMR-PPS have been met on a (n) ________ basis.

A. nternational

B. ationwide

C. irmwide

D. ttainable

View answer

Correct Answer: C

Question #86

What amount would you have in your savings account in 5 years, if it has a balance of $1,234 today and you deposit an additional $1,234 two years from today? Assume that the savings account earns 5% per year, compounded annually.

A. 10,048

B. 3,003

C. 2,468

D. 2,999

E. 3,149

View answer

Correct Answer: B

Question #87

Felix Asterix is a shrewd industry analyst working for Obelix, Inc., a brokerage firm of some repute. Asterix had invested about $50,000 in a few stocks trading on the Australian exchange a year ago. Obelix itself is not active outside the US and Asterix's transactions do not represent any violations of the company policies. One of the Australian firms whose shares Asterix holds recently applied for a dual listing on the NYSE and will begin trading in the US in a month. Asterix has advised in his recent res

A. ot violated the AIMR standard since his transactions took place long before the dual listing and he is not obligated to reveal his personal holdings

B. only

C. I and III only

D. I and IV only

E. I, III and IV only

View answer

Correct Answer: D

Question #88

Bond X carries a rating of BBB-/Baa3. Bond Y has a rating of B/B2. Both bonds are callable after five years, and both bonds mature in ten years. Identify the most accurate statement regarding the credit risk of these bonds. Which bond's value would be most affected by a ratings downgrade, and which bond has the higher default risk?

A. ond X would be more affected by a ratings downgrade, but Bond Y has higher default risk

B. ond Y would be more affected by a ratings downgrade, but Bond X has higher default risk

C. ond X has higher default risk, but both bonds would feel equivalent effects of a ratings downgrade

View answer

Correct Answer: A

Question #89

Smithers is a financial analyst with XYZ Brokerage Company. She is preparing a purchase recommendation on JNI Corporation. Which of the following situations would represent a conflict of interest for Smithers and, therefore, would have to be disclosed?

A. mithers is on a retainer as a consultant to JNI

B. I and III only

C. , II and III only

D. I only

E. and IV only

F. II only

View answer

Correct Answer: B

Question #90

A perpetuity pays $1,000 a year. You have a discount rate of 10% per year. If you are indifferent between buying this perpetuity and a 7-year annuity, how much does the annuity pay per year?

A. 2,054

B. 3,199

C. 1,867

D. 1,429

View answer

Correct Answer: A

Question #91

A distribution has a mean equal to 12 and a standard deviation of 36. It has a coefficient of variation equal to:

A. ero

B. one of these answers

C.

D.

View answer

Correct Answer: D

Question #92

Johnny deposited a check he received from his Aunt when he was 10 years old into an account paying 10% per year, compounded monthly. If the original check was for $100, how much does Johnny have in his account today, 50 years later?

A. 151

B. 5,905

C. 58,304

D. 100

E. 14,536

View answer

Correct Answer: E

Question #93

Which of the following is/are true about claims of compliance with the AIMR-PPS?

A. f a firm is only in partial compliance with PPS, it must use a disclaimer specifying the exact areas of non- compliance

B. , II and III

C. one of them

D. II only

E. and III only

View answer

Correct Answer: C

Question #94

Jack wants to retire a millionaire. If he is 30 years old today and already has $30,000 in the bank, what monthly payment would he need to make beginning one month from today and continuing until he retires on his 65th birthday, if the money will earn 8% per year, compounded monthly?

A. 222

B. 139

C. 503

D. 470

E. 238

View answer

Correct Answer: A

Question #95

The coefficient of variation is useful when:

A. he frequency distribution contains open-ended classes or overlapping classes

B. only

C. & II

D. II only

E. I only

F. & III

View answer

Correct Answer: D

Question #96

Under GAAP, which of the following costs can be capitalized?

A. rilling costs for oil wells

B. ublic relations expense to develop goodwill

C. esearch and development

D. one of these answers

View answer

Correct Answer: A

Question #97

The probability that GNP will expand in the next 12 months is called:

A. n unconditional probability

B. conditional probability

C. joint probability

D. guess

View answer

Correct Answer: A

Question #98

Type II error refers to the event that we will:

A. ail to reject the null when it is false

B. ccept the alternative when it is false

C. eject the null when it is true

D. eject the alternative when it is true

View answer

Correct Answer: A

Question #99

The ROE equals:

A. rofit margin times equity turnover

B. one of these answers

C. I & III

D. & II

E. , II & III

View answer

Correct Answer: C

Question #100

An EPS amount is always shown for:

A. ll of these answers

B. ncome before extraordinary items and the cumulative effect of accounting changes

C. ncome from continuous operations

D. umulative effect of accounting changes

View answer

Correct Answer: A

Question #101

With a discount rate of 12% per year, the value of a perpetuity that pays $500 every year is:

A. 5,231

B. 6,000

C. 4,167

D. 4,756

View answer

Correct Answer: C

Question #102

When a domestic resident purchases a foreign stock directly on the foreign stock exchange, the transaction is entered as a ________ in the BOP account.

A. eficit

B. urplus

C. redit

D. ebit

View answer

Correct Answer: D

Question #103

Which of the is/are true?

A. he probability of type II error equals 1 - significance level

B. I & IV

C. V only

D. & IV

E. II & IV

F. I only

View answer

Correct Answer: A

Question #104

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

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

B. ecreased by the dividend declaration and unchanged by the dividend payment

C. ecreased by the dividend payment and unchanged by the dividend declaration

D. one of these answers

E. ncreased by the dividend declaration and unchanged by the dividend payment

View answer

Correct Answer: B

Question #105

What does FASB refer to?

A. he Financial Analysts Standards Board

B. he Federal Accounting Society Board of Directors

C. he Financial Accounting Standards Board

D. one of these answers

View answer

Correct Answer: C

Question #106

What do we call the conditions under which the null hypothesis is not rejected?

A. ritical value

B. ecision rule

C. lternate hypothesis

D. one of these answers

E. est statistic

View answer

Correct Answer: B

Question #107

Suppose the lowest-wage state in the U.S. is West Virginia and the highest-wage state is New York. Which of the following would be true?

A. f New York trades with West Virginia, wages in New York will fall until they equal the wages in West Virginia

B. ew York would be better of if its state government imposed restrictions on the importation of goods made in West Virginia

C. oth New York and West Virginia will be better of if they are allowed to trade freely

D. f New York trades with West Virginia, consumers in New York will be worse off

View answer

Correct Answer: C

Question #108

Form 10-K is filed with the SEC to update the information a company supplied when filing a registration statement under the Securities Exchange Act of 1934. Form 10-K is a report that is filed

A. emiannually within 30 days of the end of a company's second and fourth fiscal quarters

B. uarterly within 45 days of the end of each quarter

C. ithin 15 days of the occurrence of significant events

D. one of these answers

E. nnually within 90 days of the end of a company's fiscal year

View answer

Correct Answer: E

Question #109

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

A. 5,205

B. 5,131

C. 6,089

D. 5,067

E. 6,000

View answer

Correct Answer: B

Question #110

Leading economists have predicted that the Federal Reserve will continue to pursue a stable monetary policy that has characterized the last five years, keeping the price level constant into the future. Given the Fed's monetary policy, the pure expectations theory and the liquidity preference theory would predict, respectively, the following yield curve shapes:

A. lat and flat

B. pward sloping and flat

C. lat and upward sloping

View answer

Correct Answer: C

Question #111

Which of the following AIMR Standards states that client transactions must have priority over transactions in which the analyst is a beneficial owner?

A.

B. one of these answers

C. II

D. I

View answer

Correct Answer: B

Question #112

Depreciation expense for fixed assets is recorded

A. or each period the asset is in use

B. s a liability until the asset is sold

C. t the end of each fiscal period during the asset's useful life

D. hen the asset is sold

View answer

Correct Answer: C

Question #113

Which accounting principle is consistent with reporting financial results that can be compared with previous periods?

A. dequate disclosure

B. atching

C. onsistency

D. ateriality

View answer

Correct Answer: C

Question #114

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 between 3 and 5 days?

A. 9

B. 7

C. 4

D. 1

E.

View answer

Correct Answer: B

Question #115

Standard IV (B.2) deals with ________.

A. ompensation

B. air dealing

C. oft dollars

D. ompetition

E. one of these answers

F. uitability

View answer

Correct Answer: F

Question #116

Bronson provides investment advice to the board of trustees of a private university endowment fund. The trustees have provided Bronson with the fund's financial information, including planned expenditures. Bronson receives a phone call on Friday afternoon from Murdock, a prominent alumnus, requesting that Bronson fax him comprehensive financial information about the fund. According to Murdock, he has a potential contributor but needs the information that day to close the deal and cannot contact any of the t

A. end Murdock the information because it is not material nonpublic information

B. ot send Murdock the information to preserve confidentiality

C. end Murdock the information, provided Bronson promptly notifies the trustees

D. end Murdock the information because disclosure would benefit the client

View answer

Correct Answer: B

Question #117

A firm has long-term assets worth 3,812 and total assets worth 5,937. It has a total equity of 3,934 and long term debt of 879. The firm's current ratio equals ________.

A.

B.

C.

D.

View answer

Correct Answer: D

Question #118

What is a Type II error?

A. ejecting a false alternative hypothesis

B. ccepting a false null hypothesis

C. one of these answers

D. ccepting a false alternative hypothesis

E. ejecting a false null hypothesis

View answer

Correct Answer: B

Question #119

Which of the following could cause a firm's equity position to be weaker than is reflected in the balance sheet.

A. ll of these answers

B. olding held-to-maturity securities in a portfolio with non-amortized discounts

C. olding available-for-sale securities in a portfolio that have unrealized losses

D. one of these answers

E. olding trading securities in a portfolio with unrealized gains

View answer

Correct Answer: C

Question #120

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 securities 2,500Dividends received 1,500Dividends paid ($44,000)Cash from financing activities (500)Increase in Short-term debt (2,500)Increase in Long-term debt ($3,000)Increas

A. 65,500

B. 63,500

C. 53,500

D. one of these answers

View answer

Correct Answer: A

Question #121

What monthly payment, beginning next month, would repay a $17,500 car loan over 48 months, assuming your loan has an interest rate of 4.9% per year, compounded monthly?

A. 364

B. 650

C. 953

D. 402

E. 4,923

View answer

Correct Answer: D

Question #122

If you deposit $2,250 today into a savings account paying 8% per year, compounded semiannually, how much is in your account in 10 years?

A. 4,587

B. 10,487

C. 3,330

D. 4,857

E. 4,930

View answer

Correct Answer: E

Question #123

Peterson Manufacturing has earnings per share of $4.00 and paid a dividend of $1.00 per share. Peterson's return on equity is 16.0%. Peterson is considering a debt issue that would increase its financial leverage. Peterson is also considering increasing its dividend payout ratio. Assuming all other factors are constant, Peterson's potential growth rate:

A. ill increase due to the increased leverage, and increase further due to the higher payout ratio

B. ill increase due to the higher payout ratio, but this increase will be offset to some extent by the increased leverage

C. ill increase due to the increased leverage, but this increase will be offset to some extent by the higher payout ratio

View answer

Correct Answer: C

Question #124

Standard III (B) is ________.

A. one of these answers

B. isclosure of Additional Compensation Arrangements

C. esponsibilities of Supervisors

D. isclosure of Conflicts to Employer

E. bligation to Inform Employer of Code and Standards

F. uty to Employer

View answer

Correct Answer: F

Question #125

The accumulated amount by which a plant asset has been depreciated over its useful life is classified as

A. liability

B. n asset

C. n expense

D. evenue

View answer

Correct Answer: B

Question #126

What is the chart called when the paired date (the dependent and independent variables) are plotted?

A. inear regression

B. ie

C. ar

D. otted-Swiss

E. one of these answers

View answer

Correct Answer: E

Question #127

Mr. Taylor states in his will that his $50,000 portfolio of bank CD's will go to his only son. Upon Mr. Taylor's death, the son sells the CD's and invests the proceeds in a stock mutual fund. How does this immediately impact M2 and the effective amount money available for transactions?

A. oth decrease

B. ecrease, increase

C. o change, decrease

D. oth increase

E. o change for either

F. ecrease, no change

View answer

Correct Answer: F

Question #128

Allison Coleman, CFA, owns a bond portfolio that includes Bond X, a callable bond with ten years to maturity that is callable at any time beginning one year from today. Coleman's portfolio also includes Bond Y, a noncallable security with ten years to maturity that carries the same credit rating as Bond X. Coleman expects interest rates to drift steadily lower over the next few years. Based on this assumption, Coleman should expect that:

A. ond Y will experience a larger decrease in value than Bond X

B. ond X will benefit from positive convexity as rates decline

C. he option embedded in Bond X will increase in value

View answer

Correct Answer: C

Question #129

If you deposit $500 today into an account paying 8% per year, compounded quarterly, how much will be in the account after 60 months?

A. 717

B. 702

C. 751

D. 724

E. 742

View answer

Correct Answer: E

Question #130

If you deposit $6,000 into an account paying 4% per year, compounded semiannually, how much do you have in the account in 20 years?

A. 13,248

B. 12,667

C. 14,667

D. 7,403

E. 12,204

View answer

Correct Answer: A

Question #131

Retained earnings represent:

A. one of these answers

B. ndistributed net income in the last accounting period

C. ccumulated, undistributed earnings since inception

D. arnings inclusive of any paid-in capital since inception

View answer

Correct Answer: C

Question #132

Which of the following are formulas for sample variance?

A. 1/(n-1)] * sum (as i goes from 1 to n) of (X_i - Xbar)^2

B. only

C. one of these answers is correct

D. II only

E. I only

View answer

Correct Answer: B

Question #133

A firm using LIFO accounting has a LIFO reserve of 900, with a LIFO ending inventory of 8,100. It is currently in the 40% tax bracket. If it switches to FIFO accounting, which of the following is true?

A. ts ending FIFO inventory equals 7,200II

B. II only

C. & III

D. I & III

E. , II & III

View answer

Correct Answer: A

Question #134

Under the Performance Presentation Standards, asset-weighting of portfolio returns within a composite is required. The ________ of period weightings must be used.

A. eginning

B. nd

C. one of these answers

D. idpoint

View answer

Correct Answer: A

Question #135

What do we call the value called z that is computed using sample data?

A. ecision rule

B. est statistic

C. arameter

D. one of these answers

View answer

Correct Answer: B

Question #136

Which of the following are true assumptions underlying linear regression?(1) For each value of X, there is a group of Y values which are normally distributed (2) The means of these normal distributions of Y values all lie on the straight line of regression (3) The standard deviations of these normal distributions are equal

A. ll of them

B. one of them

C. nly (2) and (3)

D. nly (1) and (3)

E. nly (1) and (2)

View answer

Correct Answer: A

Question #137

Joseph Silk is a veteran money manager with Aakanksha, Inc., a hedge fund that caters to high net-worth individuals. His friend, Gribbin, recently incorporated a private business and invited Joseph to be on its board of directors. Gribbin's business is in the paper industry and does not directly or indirectly affect Aakanksha's client base. Joseph accepted the board membership with the understanding that he would participate in Gribbin's business only over the weekends. He considered this a private venture

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

B. ot violated any standards since there is no conflicts of interest between his two professional obligations

C. iolated Standard IV (A

D. iolated Standard IV (B

View answer

Correct Answer: A

Question #138

A researcher has a sample of 700 observations from a population whose standard deviation is known to be 1,235.6. The mean of the sample is calculated to be 219.2. The null hypothesis is stated as Ho: mean = 150 and the alternative is non-directional. The p-value in this case equals ________.

A. 0

B. 3

C.

D. 2

View answer

Correct Answer: B

Question #139

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 = $300Given the above, the LIFO reserve at the end of the period is ________.

A. 225

B. 185

C. 135

D. 165

View answer

Correct Answer: D

Question #140

Andrea Anastasio heads the research wing at HiLo Funds, Ltd., an investment advisory and money management firm. Andrea was recently informed by one of her junior analysts, Marcus Cambus, that the investment recommendation on HotPots food chain stock needed an immediate downgrade from hold to sell. This was based on talks with HotPots' management whom revealed that HotPots would be launching an ill- advised expansion plan soon (this information has been discussed in the financial newspapers, too). Andrea che

A. ndrea has not violated any AIMR code but Cotler has violated Standard III (B) - Duty to Employer

B. II and IV only

C. I and IV only

D. only

E. I, III and IV only

View answer

Correct Answer: B

Question #141

By blindly adopting the ideas and works of others without acknowledgment, you have definitely violated Standard ________. You also may have violated Standard ________ because you may be making recommendations without a reasonable basis.

A. I (A); IV (1)

B. I (A); IV (1)

C. I (A); IV (A

D. I (C); IV (B

E. I (C); IV (A

F. I (C); IV (B

View answer

Correct Answer: A

Question #142

A statistician has framed his hypothesis testing problem as:Ho: mean = 0H1: mean > 0For the given sample, he calculates the z-statistic. Then, the region of rejection at the 99% level is given by:

A. -statistic > +2

B. -statistic < 1

C. -statistic < -2

D. -statistic > +1

View answer

Correct Answer: A

Question #143

An economy is currently in a state of equilibrium, at full employment. If a sudden supply shock were to decrease aggregate supply, which of the following effects will occur in the short run?

A. eal interest rates will increase

B. I & III

C. & III

D. , II & III

E. , II & IV

View answer

Correct Answer: D

Question #144

Mark Blazewhich, an analyst with an investment advisory firm, changed the recommendation on Zomega, Inc.'s stock from hold to sell 10 days ago. This recommendation was published in the firm's newsletter that came out two days after this announcement. Blazewhich has just given his broker instructions to liquidate Blazewhich's personal holdings of Zomega. Blazewhich has:

A. iolated Standard IV (B

B. iolated Standard IV (7) - Disclosure of Conflicts to Clients and Prospects

C. iolated Standard IV (B

D. ot violated any standard of AIMR code

View answer

Correct Answer: D

Question #145

The disclosures for retroactive compliance apply to composites formulated prior to ________.

A. anuary, 1989

B. anuary, 1992

C. anuary, 1991

D. anuary, 1993

E. anuary, 1990

View answer

Correct Answer: D

Question #146

The loss from an uncollectible account is

A. n asset

B. regular expense of doing business

C. liability

D. reduction in revenue

View answer

Correct Answer: B

Question #147

Julia Chen, a portfolio manager for U.S.-based Dane Investments, has just established a short position in Swiss franc currency futures as part of a currency overlay strategy. The position consists of 100,000 contracts with an initial margin of $4,000, a maintenance margin of $2,500, and a contract price of 0.9120 USD/CHF. If the futures price on the subsequent two days is 0.9300, and 0.8928, respectively, what will be her margin account balance at the end of the second day?

A. 4,000

B. 6,200

C. 7,720

View answer

Correct Answer: B

Question #148

Which of the following is/are true about aggregate demand?

A. n increase in the real rates of interest increases current demand

B. I & III

C. & II

D. & III

E. I only

View answer

Correct Answer: A

Question #149

If you buy a computer for $950 and agree to pay for it with 24 payments of $35 with the first payment occurring next month, what is the size of the final payment needed at month 24 to completely pay off the computer? Assume the interest rate you are being charged is 16% per year, compounded monthly.

A. 294

B. 0

C. 207

D. 87

E. 323

View answer

Correct Answer: E

Question #150

A normal distribution has a mean of 4.1 and a standard deviation of 2.3. The probability that a value from this distribution will be negative equals ________.

A.

B.

C.

D.

View answer

Correct Answer: B

Question #151

Which of the following about the multiplier is false?

A. dle resources are necessary before the multiplier can bring about an increase in real income

B. he size of the multiplier relates directly to the size of the marginal propensity to consume

C. t is defined as 1 / (1 - the marginal propensity to save)

D. t takes time for the multiplier to work

View answer

Correct Answer: C

Question #152

Which of the following is/are true about an auditor's opinion?

A. f an auditor finds that the firm's financial statements fairly represent the company's financial performance and position, he will issue an unqualified opinion

B. only

C. & III

D. & II

E. II only

View answer

Correct Answer: C

Question #153

A bank savings account offers a savings rate of 3.5% per year, compounded annually. How long would it take for an investment of $710 to grow to $1,000?

A. years

B. years

C. 1 years

D. 0 years

View answer

Correct Answer: D

Question #154

"Deferral" refers to:

A. postponement of recognition of income until the earnings process is actually completed

B. one of these answers

C. ecognition of an asset for all payments made for goods and services not yet delivered

D. ostponement of tax payments through the use of tax credits

View answer

Correct Answer: A

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