CFA Level 1 Mock Exam PDF, Online Practice Exam

Question #1

Performance Presentation Standards state that subsectors of larger international composites may be used to create stand-alone composites only if the subsectors are managed as ________ entities.

A. ndependent

B. wo

C. nique

D. eparate

View answer

Correct Answer: D

Question #2

What annual interest rate, compounded annually, would cause a series of 10 deposits of $1,000 to accumulate to $18,000, if the first deposit is made one year from today?

A. 4

B. 2

C. 2

D. 1

E. 5

View answer

Correct Answer: B

Question #3

Silverio Arvantis is an aggressive and quick-silver analyst with Foresi Associates, an investment advisory firm. Silverio, a freshly minted Ph.D. from the University of Chicago, recently formulated an algorithm for selecting the portfolio weights in relatively new high-tech stocks. The algorithm evaluates 43 different variables to choose the investments and as such, is fairly complex in nature. Not wishing to drown his clients in esoteric terms like "martingale" and "stochastic transformation," Silverio wri

A. iolated Standard V (B) - Performance Presentation by relying on past data

B. ot violated any standards

C. iolated Standard IV (A

D. iolated Standard IV (A

View answer

Correct Answer: C

Question #4

In Keynesian view, the best macroeconomic policy is to:

A. ncrease government investment expenditures during economic booms to offset effects of reduced capacity during the recession to follow

B. egulate aggregate expenditures to match output capacity

C. egulate wages to control inflation and promote full employment

D. ontrol government expenditures to control inflation

View answer

Correct Answer: B

Question #5

Examples of Common Stock Equivalents (CSE's) include all of the following except:

A. tock options

B. reasury stock

C. arrants

D. onvertible preferred stocks that have an effective yield of less than two-thirds of the average Aa corporate bond yield at the time of issuance

View answer

Correct Answer: B

Question #6

In periods of rising prices, which inventory costing method results in the highest net income?

A. IFO

B. verage cost

C. erpetual

D. IFO

View answer

Correct Answer: A

Question #7

Brikland Strickowski learned a month ago that one of his clients, Stratmann, had been regularly using inside information provided by numerous "contacts" in various firms to generate his trading activity with Brikland. Brikland was surprised at Stratmann's recklessness but did not want to get him into trouble so he did not inform anyone about this. AIMR has been tipped about Stratmann's activity and one of the investigators from AIMR's Professional Conduct Program (PCP) recently got in touch with Brikland ab

A. rikland violated Standard IV (B

B. , II, III and IV

C. I only

D. I and IV

E. , II and IV only

View answer

Correct Answer: C

Question #8

Which of the following best describes a statement of shareholders equity?

A. statement of shareholders equity measures a company's financial performance over a specified period of time

B. statement of shareholders equity details the cash inflows and outflows that are related to a company's operating, investing, and financing activities over a period of time

C. one of these answers

D. statement of shareholders equity reports changes over a period of time in component accounts that comprise the ownership of a firm

E. statement of shareholders equity summarizes the financial position of a company at a given point in time

View answer

Correct Answer: D

Question #9

Gerald Snow is a bond manager for Long Vision Investments. Snow is evaluating potential arbitrage opportunities. He has the following list of bonds:Bond X is a I-year zero coupon bond selling at 950.All three bonds have a par value of SI,000. if no arbitrage opportunity exists, the price of bond Z is closest to:

A. 975

B. 995

C. 1,015

View answer

Correct Answer: B

Question #10

Gamma-Theta is a financial software firm with gross sales of 176,000 last year. Its cost of goods sold equaled 25,685. Gamma-Theta's corporate tax rate is 35%. If its net income after taxes was 70,279, its operating expenses were ________.

A. 1,889

B. 2,193

C. 9,495

D. 1,722

View answer

Correct Answer: B

Question #11

Which of the following are not required disclosures under the Performance Presentation Standards?

A. ortfolio size range and percentage of total assets in the same class

B. he existence of a minimum asset size for the inclusion in composites

C. he inclusion of any non-fee paying portfolios in composites

D. hether balanced portfolio segments are included in single-asset composites

View answer

Correct Answer: A

Question #12

Suppose the probability that oil prices will rise any given quarter is 0.51, and the probability that oil prices will stay level or decline is 0.49. If oil prices rise, GNP will contract by 1% with 80% probability, and expand by 0.5% with 20% probability. If oil prices decline or stay level, GNP will expand 3% with a 75% probability and contract 0.5% with a 25% probability. What is the expected change in GNP in the next quarter?

A. 0

B. 0

C. 0

D. 0

View answer

Correct Answer: A

Question #13

If you need $25,000 in 10 years, how much must you deposit today, if your money will earn 6% per year, compounded annually?

A. 25,000

B. 13,959

C. 2,320

D. 44,771

E. 23,200

View answer

Correct Answer: B

Question #14

Which of the following is not a valid reason for selecting a sample instead of studying the whole population?

A. ll of these answers reasons are valid

B. ample results have more accuracy than population results

C. ost of studying an entire population can be too high

D. opulation can be destroyed in the process of studying it

E. tudy of the population can be too time consuming

View answer

Correct Answer: B

Question #15

The stated purposes of Standard IV (B) (8), Disclosure of Referral Fees, are to:

A. elp the customer or client evaluate the full cost of the services

B. only

C. I only

D. II only

E. and II only

F. I and III only

View answer

Correct Answer: D

Question #16

Which of the following is true regarding probability?

A. < P(E) < 1: the probability of an event E is a number between 0 and 1, exclusive

B. II only

C. and II

D. one of these answers is correct

E. I and III

View answer

Correct Answer: A

Question #17

Which of the following is the proper method of reporting the value of financial instruments on a firm's balance sheet?

A. ll of these answers

B. igher of cost or market

C. one of these answers

D. ost

E. air market value

View answer

Correct Answer: D

Question #18

To examine the trends over time within a single firm or compare firms of different sizes, you should use:

A. alance-sheet analysis

B. ommon industry analysis

C. ommon-size statements

D. ash flow analysis

View answer

Correct Answer: C

Question #19

Milton Samuel, a quantitative analyst with Middle Road Brokerage, is examining a data sample and has amassed the following information:Standard deviation of the sample: 12.37Number of observations: 100Sample mean: 231Assume that Mr. Samuel formulates a null hypothesis stating that the population mean is equal to 212. Additionally, assume that the population standard deviation is unknown. Given this information, what is the standard error of the estimate? Further, what is the test statistic? Choose the best

A.

B.

C.

D.

E. one of these answers is correct

F.

View answer

Correct Answer: A

Question #20

Which of the following is/are FALSE?

A. ver the life of the firm, income and cash flow are the same

B. I only

C. , III & IV

D. II & IV

E. , II, III & IV

View answer

Correct Answer: A

Question #21

The following financial statement depicts only one point in time:

A. ncome Statement

B. tatement of Cash Flows

C. tatement of Retained Earnings

D. alance Sheet

View answer

Correct Answer: D

Question #22

A manager who pays a higher commission than would normally be paid to purchase the goods or services:

A. ay be violating the fiduciary duties owed to the client

B. one of these answers

C. s violating the fiduciary duties owed to the client

D. s not violating the fiduciary duties owed to the client

View answer

Correct Answer: C

Question #23

Edwin Hubble, who works for a respectable investment advisory firm, recently found out that his supervisor has been engaging in "front-running," i.e., executing transactions for personal accounts before client accounts. As an AIMR member, he is required to do all of the following EXCEPT?

A. eport the illegal activity to the appropriate regulatory authorities

B. issociate himself from the activity

C. onsult with the legal department on the matter

D. nform senior management about the activity with a view of stopping it

View answer

Correct Answer: A

Question #24

Suppose that events A, B, C, and D are independent, and have probabilities of 0.25, 0.50, 0.40, and 0.30, respectively. What is P(ABCD)?

A.

B. 5

C.

D.

View answer

Correct Answer: C

Question #25

Accounting Standards are best described as

A. he state-of-the-art presentation of the science of accounting

B. resentation standards mandated by the Securities and Exchange Commission

C. he result of a political process among groups with diverse interests

D. easuring the quality of stewardship

View answer

Correct Answer: C

Question #26

Standard III (D), Disclosure of Additional Compensation Arrangements is important because

A. utside arrangements may affect loyalties and objectivity and create potential conflicts of interest

B. one of these answers

C. utside arrangements are not allowed under circumstances

D. hird parties are inherently in competition with the current employer

E. he verbal disclosure requirement allows for "compensation in kind

F. ll of these answers

View answer

Correct Answer: A

Question #27

Management is considering adopting a bonus system to increase production. One suggestion is to pay a bonus on the highest 5 percent of production based on past experience. Past records indicate that, on the average, 4,000 units of a small assembly are produced during a week. The distribution of the weekly production is approximately normally distributed with a standard deviation of 60 units. If the bonus is paid on the upper 5 percent of production, the bonus will be paid on how many units or more?

A. one of these answers

B. 196

C. 120

D. 099

E. 255

View answer

Correct Answer: D

Question #28

Excess kurtosis is a problem for investment researchers using normal distributions because:

A. he likelihood of extreme outcomes will be overestimated

B. istorical returns are better modeled with platykurtic distributions

C. t is difficult to calculate

D. he likelihood of extreme outcomes will be underestimated

View answer

Correct Answer: D

Question #29

What must you know to develop a binomial probability distribution?

A. robability of success

B. robability of success and number of trials

C. robability of success and number of successes

D. umber of trials

E. umber of successes

View answer

Correct Answer: B

Question #30

The ERISA fiduciary needs to be as prudent as

A. he average investment advisor

B. he average person

C. he average expert

D. one of these answers

View answer

Correct Answer: C

Question #31

An end-of-period adjustment for depreciation of fixed assets is necessary:

A. o recognize the expense of using fixed assets

B. ll of these answers

C. roper statement of net income

D. o be consistent with the matching principle

View answer

Correct Answer: B

Question #32

Which of the following describes a change in reporting entity?

A. company acquires a subsidiary that is to be accounted for as a purchase

B. one of these answers

C. business combination is made using the pooling-of-interests method

D. manufacturing company expands its market from regional to nationwide

E. company acquires additional shares of an investee and changes from the equity method of accounting to consolidation of the subsidiary

View answer

Correct Answer: C

Question #33

Which of the following is/are true about a standard normal distribution?

A. t has zero skewness

B. , II, III and IV

C. & III

D. I only

E. II only

F. only

View answer

Correct Answer: B

Question #34

The monthly compounded rate is 4% quoted on an annualized basis. The equivalent semiannually compounded rate is:

A.

B.

C.

D.

View answer

Correct Answer: B

Question #35

Which of the following are considered basic characteristics of a security and must be included in research reports?

A. usiness risk

B. egree of uncertainty

C. nnual expected income

D. ield-to-maturity

E. ll of these answers

F. oth degree of liquidity and yield-to-maturity

View answer

Correct Answer: E

Question #36

A firm's financial audit ensures all of the following EXCEPT:

A. he company is managing its risks within the guidelines specified in its charter

B. here are adequate controls and checks in place in its accounting systems

C. here are no material errors or omissions in its financial reports

D. he management is not misstating its performance

View answer

Correct Answer: A

Question #37

Jackson, an analyst, decides not to change a recommendation from buy to sell because she wants to sell her holdings first. Is there a standards violation?

A. o

B. es, Standard IV (A

C. es, Standard III (B), Duty to Clients and Prospects

D. es, Standard IV (B

View answer

Correct Answer: D

Question #38

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 equit y37,432Average common equity 26,782Average total liabilities 18,583In the above example, the firm's return on total equity equals ________.

A.

B.

C.

D.

View answer

Correct Answer: C

Question #39

You wish to determine the number of unique combinations that can result from a process that involves n_1 options in one respect, n_2 in another respect, and so on. The counting method you should use is:

A. he binomial formula

B. he multiplication rule

C. he multinomial formula

D. he permutation rule

View answer

Correct Answer: B

Question #40

The Performance Presentation Standards ________ require retroactive compliance.

A. ever

B. lways

C. ometimes

View answer

Correct Answer: C

Question #41

The lengths of time (in minutes) several underwriters took to review applications for similar insurance coverage are: 50, 230, 52 and 57. What is the median length of time required to review an application?

A. 41

B. 4

C. one of these answers

D. 09

E. 7

View answer

Correct Answer: B

Question #42

Termite Terminators has a debt-to-equity ratio of 50%. The equity consists of 80,000 common stock, valued at the year-end at 65. The preferred equity consists of 30,000 shares of par value 25 and coupon of 6%. The debt carries a coupon rate of 8%. During the year, Termite earned 1.2 million and had an average stock price of 75. It also has 40,000 warrants attached to the debt, each exercisable at 68. Termite's reported Diluted EPS shouldbe:

A. 4

B. 3

C. 5

D. 5

View answer

Correct Answer: B

Question #43

Which of the following is considered a characteristic of a liability?

A. liability represents a claim against a company's present and future assets and resources

B. liability requires the rendering of future services

C. ll of these answers

D. liability requires the payment of money

E. liability represents a claim that is usually senior to the holders of equity securities

View answer

Correct Answer: C

Question #44

Which combination leads to the lowest income tax paid in earlier years of a firm?Inventory valuationDepreciation

A. IFOStraight-lineII

B. V

C. I

D.

E. II

View answer

Correct Answer: A

Question #45

A sample of single persons receiving social security payments revealed these monthly benefits: $826, $699, $1,087, $880, $839 and $965. How many observations are below the median?

A.

B.

C.

D.

E. one of these answers

View answer

Correct Answer: B

Question #46

According to the AIMR-PPS, performance must be calculated

A. efore or after the deduction of trading expenses, as long as that information is disclosed

B. efore or after the deduction of trading expenses, without the need for disclosures because there will be no difference in the numbers

C. efore the deduction of trading expenses

D. fter the deduction of trading expenses

View answer

Correct Answer: D

Question #47

Companies A and B, similar in all respects, recently bought identical securities. However, using the "Management intent" rule, A has classified the securities as "trading" securities while B has categorized them as "available-for-sale" securities. Which of the following statements is/are true as a result of this difference?

A. and B will show same assets on their balance sheets

B. I & III

C. II only

D. & III

E. , II & III

View answer

Correct Answer: D

Question #48

When presenting the components of total return for a real estate portfolio, the recognition of income at ________ level, rather than at the operating level, is preferred.

A. isk

B. urchase

C. ealized

D. nvestment

E. omposite

View answer

Correct Answer: D

Question #49

Which of the following is/are true about a normal distribution?

A. t is a bimodal distribution

B. only

C. II only

D. V only

E. I only

F. I, III and IV

View answer

Correct Answer: B

Question #50

How long will it take money to double at 9.5% per year, compounded annually?

A. 8

B.

C. 0

D.

E.

View answer

Correct Answer: D

Question #51

MacDonald Inc. reported net income of $300,000 for 1996. Changes occurred in several balance sheet accounts as follows:Equipment $25,000 increaseAccumulated depreciation $40,000 increaseNote payable $30,000 increaseAdditional information:During 1996, MacDonald sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.In December 1996, MacDonald purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.Depreciation expense for the year was $5

A. 347,000

B. 357,000

C. 243,000

D. 340,000

E. 352,000

View answer

Correct Answer: A

Question #52

Acquire Corp. has a business model based on making accretive acquisitions each year. The company has historically been successful in implementing its strategy. Earnings per share have grown each of the last five years at a 15% compounded rate. During the past year, Acquire Corp. acquired a services company with large net operating losses, representing a third leg to its business model. The other two business segments are engineering construction and mining. The purchase price was one-half the company's curr

A. rice-to-book value ratio

B. orward price-to-earnings ratio

C. railing price-to-sales ratio

View answer

Correct Answer: B

Question #53

Which of the following is/are revenue recognition methods?

A. ost Recovery MethodII

B. I, III & IV

C. & II

D. , II & III

E. II & IV

View answer

Correct Answer: B

Question #54

Which of the following would be considered non-activist monetary policy?

A. he government allows tax revenues to rise and fall with the business cycle, while keeping spending constant

B. he Central Bank acts to smooth the business cycle

C. he Central Bank attempts to keep inflation at a minimum, ignoring unemployment

D. he Central Bank prints new currency each year in order to increase the money supply by 3%

E. he Central Bank targets short-term interest rates

View answer

Correct Answer: D

Question #55

Performance is the record of the ________.

A. ndividual

B. irm

C. nvestment manager

D. hild

E. erson

View answer

Correct Answer: B

Question #56

Morgan Dexter has been asked by his supervisor to present the features of interest rate swaps to a group of newly hired risk managers. In his presentation, Dexter notes that in a plain-vanilla interest rate swap, there is one floating rate-payer and one fixed-rate payer. Dexter points out that the netting arrangements typical to plain vanilla swaps reduce the credit risk for both counter parties Dexter also states that some interest rate swaps may have two floating rate payers. Are Dexter *s statements rega

A. nly Dexter's statement about reduced credit risk from netting is correct

B. nly Dexter's statement about two floating rate payers is correct

C. oth statements are correct

View answer

Correct Answer: C

Question #57

What is the Net Present Value of this series of annual cash flows at an interest rate of 12% per year: Year 0:<$30,000>, Year 1: $5,000, Year 2: $8,000, Year 3: $11,000, Year 4 <> are used to indicate a negative number).

A. 951

B. $1,795

C. 1,104

D. $1,077

E. $1,579

View answer

Correct Answer: B

Question #58

The mean weight of trucks traveling on a particular section of I-475 is not known. A state highway inspector needs an estimate of the mean. He selects a random sample of 49 trucks passing the weighing station and finds the mean is 15.8 tons, with a standard deviation of the sample of 3.8 tons. What is the 95 percent interval for the population mean?

A. 4

B. 6

C. 0

D. one of these answers

E. 3

View answer

Correct Answer: A

Question #59

Suppose the Fed sells $25 million worth of Treasury bonds in the open market. This action will serve to________ the consumption of interest-rate sensitive goods like home mortgages. The U.S. dollar will ________ against the other currencies.

A. ncrease; appreciate

B. ncrease; depreciate

C. ecrease; appreciate

D. ecrease; depreciate

View answer

Correct Answer: C

Question #60

A price-linked derivative security pays $300 if the oil price over the next year increases by more than 5%, anevent that can happen with a 60% probability. Otherwise, it pays $50. If the expected return on the security is 15%, how much does the security cost?

A. 174

B. 180

C. 168

D. 191

View answer

Correct Answer: A

Question #61

What is the Net Present Value of this series of annual cash flows using an interest rate of 15% per year: Year0: <$15,000>, Year 1: $5,000, Year 2: $8,000, Year 3: $11,000? (Note that the <> are used to indicate a negative number).

A. 2,589

B. 3,104

C. 2,981

D. 5,077

E. 2,629

View answer

Correct Answer: E

Question #62

Which approach to probability is exemplified by the following formula? Prob. of Event happening = No. of times event occurred in the past/Total no. of observations.

A. priori approach

B. one of these answers

C. elative frequency approach

D. ubjective approach

View answer

Correct Answer: C

Question #63

The annual commissions per salesperson employed by a manufacturer of light machinery averaged $40,000 with a standard deviation of $5,000. What percent of the sales persons earn between $32,000 and $42,000?

A. 0

B. 4

C. 9

D. one of these answers

E. 1

View answer

Correct Answer: A

Question #64

________ accounting is suggested for calculating performance.

A. rade-date

B. erformance

C. ccrual

D. ongitudinal

E. omposite

View answer

Correct Answer: A

Question #65

An investor buys 200 shares of ABC at the market price of $100 on full margin. The initial margin requirement is 40 percent and the maintenance margin requirement is 25 percent.What is the leverage factor of the margin purchase?

A.

B.

C.

D.

View answer

Correct Answer: A

Question #66

Which of the following is a long-term liability?

A. ost of goods sold

B. onds

C. ommercial paper

D. ccounts payable

E. one of these answers

View answer

Correct Answer: B

Question #67

Suppose that the Central Bank announces that it will increase the money supply by 5%. Producers collectively determine that this will cause a 5% increase in both the price of their products and the cost of their inputs. How will this impact real GDP?

A. ncrease by more than 5% in the short-run

B. ncrease by an indeterminate degree in the short-run

C. annot determine without knowing whether GDP is below potential

D. ncrease by less than 5% in the short-run

E. ncrease by 5%

F. o impact

View answer

Correct Answer: F

Question #68

Standard V (A), Prohibition against Use of Material Nonpublic Information, states that the test for determining if a tipper is breaching a fiduciary duty

A. s whether the tippee benefits directly or indirectly from the disclosure

B. s whether the tipper benefits directly or indirectly from the disclosure

C. s whether the tipper benefits directly from the disclosure

D. s whether the insider benefits directly from the disclosure

E. one of these answers

View answer

Correct Answer: B

Question #69

A mortgage holding company has found that 3% of its mortgage holders default on their mortgage and lose the property. Furthermore, 90% of those who default are late on at least two monthly payments over the life of their mortgage as compared to 45% of those who do not default.What is the probability that a mortgagee with two or more late monthly payments will default on the mortgage and lose the property?

A.

B.

C.

D. one of these answers

E.

View answer

Correct Answer: B

Question #70

Which of the following is NOT a change in accounting?

A. hange in accounting principle

B. hange in past accounting error

C. hanging in accounts reporting entity

D. hanging in accounting estimate

View answer

Correct Answer: B

Question #71

If a company estimates that its expected return on pension plan assets will increase to 9.5% from 9.0% this would be considered ________.

A. n extraordinary gain

B. change in accounting estimate

C. prior period adjustment

D. change in accounting principle

View answer

Correct Answer: B

Question #72

In allowing a claim of being in compliance with the PPS, AIMR requires that the compliance be on a "firmwide" basis. Which of the following does not qualify as "a firm" in this requirement?

A. subset of assets managed in one or more base currencies

B. n entity registered with the appropriate regulatory authority

C. subsidiary or a division of a parent organization

D. one of these answers

View answer

Correct Answer: A

Question #73

Level ________ verification applies to specific composites.

A.

B. V

C. I

D.

E. II

View answer

Correct Answer: C

Question #74

Which of the following is/are TRUE under GAAP?

A. he change in the assets of a firm net of the change in liabilities represents a change in the total equity of the firm

B. & II

C. , II & III

D. I only

E. & III

View answer

Correct Answer: D

Question #75

Standard III (C) deals with conflicts of interest of a member with ________.

A. olleagues at the same firm

B. he employer

C. one of these answers

D. he client

E. ther investment professionals

F. he investing public

View answer

Correct Answer: B

Question #76

Which of the following is/are true about liquidity ratios, all else equal?

A. he cash ratio increases as average receivables increase

B. II only

C. I only

D. , II & III

E. & III

View answer

Correct Answer: B

Question #77

Extraordinary items are placed on the income statement:

A. fter net income from continuing operations and net of tax

B. s a footnote to the statement as they are 1 time items and are not a part of the normal course of business for a corporation

C. ithin income from operations net of tax

D. fter net income from continuing operations and before taxes

View answer

Correct Answer: A

Question #78

Parts of the standards that are ________ must be observed.

A. estraining

B. andatory

C. ecommended

D. uggested

E. nhibiting

View answer

Correct Answer: B

Question #79

If the hypothesized value of a parameter under the null hypothesis lies outside the confidence interval, the null hypothesis:

A. one of these answers

B. annot be rejected at the corresponding significance level

C. hould be rejected at the corresponding significance level

D. s ill-specified

View answer

Correct Answer: C

Question #80

Bond X and Bond Y were issued at a premium to par value three years ago. Bond X matures in five years, and Bond Y matures in ten years. Both bonds carry the same credit rating. Bond X has a coupon of 7.25%, and Bond Y has a coupon of 8.00%. Currently the required yield for both bonds is 7.60%. Determine whether each bond is currently priced at a premium or discount to par value.

A. oth bonds are priced at a premium

B. ond X is priced at a premium, and Bond Y is priced at a discount

C. ond X is priced at a discount, and Bond Y is priced at a premium

View answer

Correct Answer: C

Question #81

The primary cause of frictional unemployment is

A. luctuations in aggregate demand

B. he lack of training and marketable qualifications in job seekers

C. naccurate and costly information about job opportunities

D. igh unemployment benefits that reduce the incentive of unemployed workers to seek work

View answer

Correct Answer: C

Question #82

If you deposit $150 a month, beginning next month, for 20 years into an account paying 6% per year, compounded monthly, how much is in your account after the last deposit?

A. 70,343

B. 48,833

C. 49,904

D. 143,582

E. 69,306

View answer

Correct Answer: E

Question #83

Ratios are best interpreted when compared to which of the following?

A. redetermined standards

B. he ratios of prior periods

C. ll of these answers are correct

D. atios of competitors

View answer

Correct Answer: C

Question #84

Sue Wie, CFA, is the chief financial officer for Garth Company. The company will need to borrow S75 million in the near future to fund a plant expansion. Wie expects interest rates will rise and decides to hedge against this risk using a 3 * 6 LIBOR based forward rate agreement (FRA). The underlying rate for this FRA is:

A. 0-day LIBOR

B. 0-day LIBOR

C. 80-day LIBOR

View answer

Correct Answer: B

Question #85

Which of the following is the least accurate description of behavioral finance and related investor bias?

A. voiding or ignoring new information that would call a decision into question is an example of overconfidence bias

B. ehavioral finance may explain some of the anomalies that tend to refute the efficient markets hypothesis

C. ommitting more funds to a position that has lost value is an example of escalation bias

View answer

Correct Answer: A

Question #86

KCE stock is currently selling for $51.13 per share in the market. Six-month American put options on KCE with a strike price of $55 are available, and the risk-free rate of interest is 3.66%. Calculate the lower bound for the KCE American put options.

A. 2

B. 3

C. 3

View answer

Correct Answer: C

Question #87

One year ago, Yong Kim bought a preferred stock that had a 6% dividend yield. Now, one year later, Kim sells the stock which is how selling at a 5% dividend yield. The preferred stock pays a fixed annual dividend, which Kim received right before selling. What rate of return did Kim realize on his investment?

A. 4%

B. 0%

C. 6%

View answer

Correct Answer: C

Question #88

Standard III includes rules on which of the following?

A. rofessional Misconduct

B. ll of these answers

C. rohibition against Plagiarism

D. bligation to Inform Employer of Code and Standards

E. se of Professional Designation

F. one of these answers

View answer

Correct Answer: D

Question #89

If you deposit $2,345 into an account paying 6.5% per year simple interest, how much interest will be earned after 8 months?

A. 101

B. 14

C. 309

D. 94

E. 122

View answer

Correct Answer: A

Question #90

The promulgation of GAAP is a responsibility that rests with:

A. he Securities and Exchange Commission (SEC)

B. he Committee on Accounting Procedures (CAP)

C. one of these answers

D. he American Accounting Association (AAA)

View answer

Correct Answer: A

Question #91

A perpetuity of $5,000 a year is priced at $40,000. The annual discount rate is:

A. 2

B. 3

C. 1

D. 2

View answer

Correct Answer: A

Question #92

According to the New Classical View, ________ is unaffected by deficits since people will save more money in order to pay the higher future taxes.

A. he real interest rate

B. he marginal tax rate

C. rice equalization

D. he supply-side

E. iscal policy

View answer

Correct Answer: A

Question #93

What quarterly payment is required beginning one period from today to pay off a $4,000 debt, if interest accrues at 8% per year, compounded quarterly, and the debt is to be retired in 5 years?

A. 1,001

B. 244

C. 848

D. 407

E. 214

View answer

Correct Answer: B

Question #94

How much must you deposit today in order to withdraw $1,500 in 1 year, $400 in 2 years and $1,500 in 4 years, assuming your money earns 6% per year, compounded annually?

A. 2,771

B. 2,821

C. 2,959

D. 3,029

E. 404

View answer

Correct Answer: C

Question #95

The current exchange rate for French francs is $0.20. For a U.S. bank this is an example of:

A. n indirect quote in European terms

B. n indirect quote in American terms

C. direct quote in American terms

D. direct quote in European terms

View answer

Correct Answer: C

Question #96

Congress passes a law requiring the government to pay certain debts of companies that have declared bankruptcy. Which of the following terms most accurately describes this program?

A. upply-side

B. utomatic stabilizer

C. xpansionary fiscal policy

D. oral hazard

E. one of these answers is correct

F. onetary policy

View answer

Correct Answer: B

Question #97

At the end of a fiscal period, any revenue that has been earned but not received should be credited to an appropriate

A. evenue account

B. sset account

C. iability account

D. xpense account

View answer

Correct Answer: A

Question #98

A capital lease is recorded as ________.

A. n asset and a liability

B. temporary asset

C. n off-balance-sheet item

D. liability

View answer

Correct Answer: A

Question #99

The Income Statement:

A. eflects the current operating performance of the firm

B. , II, III & IV

C. I & III

D. only

E. & IV

View answer

Correct Answer: C

Question #100

Which of the following is/are true about stock dividends?

A. tock dividends lead to a decrease in the retained earnings account

B. I & III

C. & III

D. , II & III

E. only

View answer

Correct Answer: C

Question #101

Warranty liabilities:

A. re estimated liabilities

B. ust also result in an expense during the same period as the revenue from the sale of the product

C. esult when a company sells a product

D. ll of these answers

View answer

Correct Answer: D

Question #102

In a stratified random sampling method,

A. sample is selected by randomly generating an integer, N, and selecting every Nth member of the population

B. sample is selected by first dividing the population into groups and then selecting members from each group

C. sample is selected by drawing numbers from a normal probability distribution

D. sample selected such that every member of the population has the same chance of being selected

View answer

Correct Answer: B

Question #103

Sparten, Inc., a plumbing contractor, received a check for $3,000 on June 30 for services to be performed in the following fiscal month. During the July accounting period, Sparten completed all but $500 of the job. What adjusting entry needs to be made at the end of July?

A. ncrease Cash and Revenue for $3,000

B. ecrease Accounts Receivable and increase Revenue for $2,500

C. ncrease Unearned Revenue and decrease Cash for $500

D. ebit Unearned Revenue and credit Revenue for $2,500

View answer

Correct Answer: D

Question #104

If you owe 3 debts ($100 due 6 months from now, $500 due 8 months from now, and $1,000 due 11 months from now), what single payment can you make today to settle them, if interest is assessed at 10% per year, compounded monthly?

A. 1,600

B. 1,475

C. 1,552

D. 1,387

E. 1,504

View answer

Correct Answer: B

Question #105

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

A. 3,215

B. 2,989

C. 3,244

D. 3,298

E. 3,308

View answer

Correct Answer: A

Question #106

An increase in the nominal interest rate would

A. ncourage people to hold larger money balances

B. ause households to increase consumption

C. ncourage people to hold smaller money balances

D. orce the Fed to reduce the money supply

View answer

Correct Answer: C

Question #107

What is the distribution with a mean of 0 and a standard deviation of 1 called?

A. inomial probability distribution

B. one of these answers

C. requency distribution

D. -score

E. tandard normal distribution

View answer

Correct Answer: E

Question #108

Regarding financial accounting for public companies, the role of the SEC as currently practiced is to

A. ake rules and regulations regarding filings with the SEC but not to regulate annual or quarterly reports to shareholders

B. evelop and promulgate most generally accepted accounting principles

C. ake rules and regulations pertaining more to disclosure of financial information than to the establishment of accounting recognition and measurement principles

D. one of these answers

E. egulate financial disclosures for corporate, state, and municipal reporting

View answer

Correct Answer: C

Question #109

What deposit would you need to make today in order to withdraw $100 a month for the next 5 years, beginning next month, if the deposit will accrue interest at 8% per year, compounded monthly?

A. 5,141

B. 492

C. 1,237

D. 399

E. 4,931

View answer

Correct Answer: E

Question #110

An investment of $100 grows in three years to $221. The investor observes that the annual arithmetic rate of return and the geometric rate of return were the same over this period. The annual arithmetic rate of return must be ________.

A. 0

B. 3

C. 0

D. 4

E. 7

View answer

Correct Answer: A

Question #111

Tony Horn, CFA, is evaluating two bonds. The first bond, issued by Kanon Corp., pays a 7.5% annual coupon and is priced to yield 7.0%. The second bond, issued by Samuel Corp., pays a 7.0% annual coupon and is priced to yield 8.0%. Both bonds mature in ten years. If Horn can reinvest the annual coupon payments from either bond at 7.5%, what would his return be on each bond, assuming the bond was held to maturity?

A. reater than 7

B. ess than 7

C. reater than 7

View answer

Correct Answer: A

Question #112

Suppose that you write an investment newsletter. You track 12 stocks, and you classify these stocks into equal- sized categories of buy, sell, and hold. How many different ways can you classify these stocks into thosecategories?

A. 4,860

B. 6,540

C. 4,680

D. 4,650

View answer

Correct Answer: D

Question #113

Arvantis works for Quick-time Brokerage. He has not been happy with his employment for some time and recently decided to start his own hedge fund. He started making administrative preparations for setting up the fund while still working for Quick-time Brokerage. He also made contact with a few of his oldest clients and gave them details about his hedge fund. The clients promised to switch accounts once the fund was initiated.Arvantis has:

A. iolated Standard III (B) - Duty to Employer by making preparations to enter a competitive business while still being employed with Quick-time Brokerage

B. only

C. I only

D. and II

E. II only

View answer

Correct Answer: B

Question #114

A 1-year U.S. Treasury bill is priced to yield 4.10%. A 2-year U.S. Treasury security is priced to yield 4.65%.The 1-year forward rate one year from now is closest to:

A.

B.

C.

View answer

Correct Answer: C

Question #115

Latham has been following a publicly traded oil firm, Techron Oil. Recently, he read a review about the oil fields in Venezuela, to the effect that the actual oil content of the fields across the country might be as much as 35% higher than previously estimated. Techron owns sizable properties in Venezuela and Latham has concluded that the research report implies that Techron might have as much as a million gallons a day in excess capacity that has not been factored into the stock price. In his report, he pr

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

B. I, III and IV only

C. II only

D. one of them

E. and III only

View answer

Correct Answer: B

Question #116

Which one of the following is NOT a condition of the binomial distribution?

A. ndependent trials

B. nly two outcomes

C. robability of success remains constant from trial to trial

D. t least 10 observations

E. one of these answers

View answer

Correct Answer: D

Question #117

The following data have been extracted from the financial statements of a firm for two years, 1995 and 1996:1995 1996Assets 8,174 8,439Net Sales 9,412 8,949Receivables 1,135 986Inventory 2,119 2,464COGS 6,948 7,089The receivables turnover ratio and the average receivables collection period for 1996 equal ________.

A.

B.

C.

D. one of these answers

View answer

Correct Answer: A

Question #118

Over a given year, a firm's total assets increased by $7,000 and total liabilities decreased by $4,000. If the firm did not issue any new equity and paid out $1,500 in dividends, then its net income during the year was ________.

A. 1,500

B. 9,500

C. 4,500

D. 12,500

View answer

Correct Answer: D

Question #119

Cornelius is a portfolio manager with Apex Investments, an investment advisory firm. Cornelius has, over the years, developed a special symbiotic relationship with Mike Milken, the owner of Milk 'em, Inc., a small brokerage firm. Cornelius puts subtle pressure on the trading desk at Apex to execute its trades through Milk 'em, thus generating brokerage revenue for Mike. In return, Mike recommends the services of Apex Investments to many of its clients. This arrangement is not disclosed to either the senior

A. ot violated any AIMR standards

B. I, III and IV only

C. I and IV only

D. only

E. I and III only

View answer

Correct Answer: A

Question #120

The mean of a normally distributed group of weekly incomes of a large group of executive is $1,000 and the standard deviation is $100. What is the z-score for an income of $1,100?

A. 0

B.

C. one of these answers

D.

E.

View answer

Correct Answer: E

Question #121

Which of the following would most likely cause a nation's currency to depreciate?

A. n increase in domestic real interest rates

B. igher inflation than one's trading partners and a reduction in domestic real interest rates

C. reduction in domestic real interest rates

D. igher inflation than one's trading partners

E. n increase in exports coupled with a decline in imports

View answer

Correct Answer: B

Question #122

Which of the following statements about expected inflation are true?

A. nterest rate volatility will increase

B. rice increases will typically outpace increases in wages

C. ll of these answers are correct

D. enders are not compensated for the loss of purchasing power when funds are repaid

E. one of these answers is correct

View answer

Correct Answer: E

Question #123

In the successful effort method, oil firms:

A. re required to expense all oil-drilling costs resulting in dry holes

B. only

C. & II

D. II & IV

E. I only

View answer

Correct Answer: B

Question #124

The following information is from the financial statements of Complex Capitalists for 1997 and 1998:Dec. 31, 1997 - 1 million common shares outstanding, capital structure all-equity March 31, 1998 - issued 200,000 common shares.May 31, 1998 - issued 800,000 warrants exercisable at a strike of 35.The stock price on Dec. 31, 1998 was 37. The average price during 1998 was 34 and the maximum price was39. How many shares will the basic EPS computation for 1998 use?

A.

B.

C.

D.

View answer

Correct Answer: B

Question #125

The peaks and valleys of the business cycle tend to be smoothed out using which inventory method?

A. eighted average

B. IFO

C. ross profit method

D. IFO

View answer

Correct Answer: B

Question #126

A stock has the following returns over 3 years: -10%, +15%, +25%. The annual geometric rate of return over the 3 years is ________.

A. 9

B.

C. 0

D.

E. 3

F. 4

View answer

Correct Answer: A

Question #127

A tire manufacturer advertises that "one-half of our new all-season radial tire last at least 50,000 miles. An immediate adjustment will be made on any tire that does not last 50,000 miles." You purchased four of these tires. What is the probability that all four tires will wear out before traveling 50,000 miles?

A. one of these answers

B. /10, or 0

C. /4, or 0

D. /16, or 0

E. /64, or 0

View answer

Correct Answer: D

Question #128

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

A. 0

B. 1

C. 6

D. 1

E. one of these answers

View answer

Correct Answer: C

Question #129

Standard III includes which of the following ?

A. easonable Basis and Representations

B. ll of these answers

C. erformance Presentation

D. se of Professional Designation

E. one of these answers

F. esponsibilities of Supervisors

View answer

Correct Answer: F

Question #130

What is it called when all the items in the population have the same chance of being selected for the sample?

A. luster sampling

B. imple Random sampling

C. udgment sampling

D. onprobability sampling

E. one of these answers

View answer

Correct Answer: B

Question #131

The following data have been obtained from a firm's financial statements:operating profit margin 34%interest expenses 465depreciation expenses 123debt-to-equity ratio 0.60total assets 2,375total sales 4,109tax rate 37%The firm's ROE equals ________.

A. 9

B. 2

C. 6

D. 4

View answer

Correct Answer: D

Question #132

What is the present value today of these annual cash flows: $5,000, $4,000, $3,000, $2,000, $1,000? Assume the first cash flow occurs 1 year from today and an interest rate of 8% per year, compounded annually.

A. 12,854

B. 15,000

C. 13,598

D. 12,591

E. 5,000

View answer

Correct Answer: D

Question #133

Nina Foch, CFA, is considering investing in an exchange traded fund (ETF). However, she is unsure how the ETF compares to open-end and closed-end funds. Which of the following statements comparing ETFs with open-end and closed-end funds is least likely to be true?

A. TF shares can be sold short, while open-end fund shares cannot be shorted

B. he legal structure of an ETF is similar to a closed-end fund

C. TF shares trade like closed-end fund shares

View answer

Correct Answer: B

Question #134

Which of the following statements about the Securities and Exchange Commission (SEC) is true?

A. he SEC must audit all financial statements of publicly traded corporations

B. he SEC has issued specific rules and regulations concerning the preparation of financial statements and the degree of detail that they contain

C. one of these statements are true

D. he SEC functions as the standard-setting body of the accounting profession

View answer

Correct Answer: B

Question #135

If your estate were to receive $100 a year, beginning next year, for 100 years, what is the equivalent single amount today that this series of cash flows is equal to, assuming interest is 5% per year, compounded annually?

A. 11,302

B. 10,000

C. 2,041

D. 58

E. 1,984

View answer

Correct Answer: E

Question #136

________ states the range over which a population parameter likely lies.

A. point estimate

B. normal deviate

C. confidence interval

D. stratified range estimate

View answer

Correct Answer: C

Question #137

Willier is the research analyst responsible for following Company X. All the information he has accumulated and documented suggest that the outlook for the firm's new products is poor, so the stock should be rated a weak hold. During lunch, however, Willier overhears a financial analyst from another firm offer opinions that conflict with Willier's forecasts and expectations. Upon returning to his office, Willier releases a strong buy recommendation to the public. Willier:

A. iolated the Standards by failing to distinguish between facts and opinions in his recommendation

B. as in full compliance with the Standards

C. iolated the Standards because he did not have a reasonable and adequate basis for his recommendation

D. iolated the Standards because he did not seek approval of the change from his firm's compliance department

View answer

Correct Answer: C

Question #138

Higher unemployment insurance benefits tend to increase unemployment because they

A. educe the opportunity cost of job search and hence decrease the search time

B. ncrease the opportunity cost of job search and hence increase the search time

C. educe the opportunity cost of job search and hence increase the search time

D. ncrease the opportunity cost of job search and hence decrease the search time

View answer

Correct Answer: C

Question #139

Suppose the probability that electricity prices will rise any given quarter is 0.60, and the probability that oil prices will stay level or decline is 0.40. If electricity prices rise, corporate profits will decline by 2% with 90% probability, and increase by 0.5% with 10% probability. If electricity prices decline or stay level, corporate profits will increase 3% with a 65% probability and decline 0.5% with a 35% probability. What is the expected change in corporate profits in the next quarter?

A. 0

B. 0

C. 0

D. 0

View answer

Correct Answer: B

Question #140

Topaz Metals Inc. produces precious metals from its mining operations. The selling price for its product is reasonably assured, the units are interchangeable, and the costs of selling and distributing the product are insignificant. In order for Topaz to recognize revenue as early in the revenue cycle as is permitted under generally accepted accounting principles, the revenue recognition method that Topaz should use is the ________.

A. ercentage-of-completion method

B. roduction method

C. ash method

D. ompleted-contract method

E. ost recovery method

View answer

Correct Answer: B

Question #141

A firm has to pay 1,000 to its suppliers in one year. The interest rate on this liability is 9%. The current liability recorded by the firm is ________.

A. ,090

B. 0

C. ,000

D. 17

View answer

Correct Answer: C

Question #142

A firm pays out half its earnings as dividends. If its net income is $50, then

A. ts assets increase by $25II

B. II & IV

C. & II

D. & IV

E. I & IV

View answer

Correct Answer: B

Question #143

What is the Net Present Value of this series of annual cash flows at an interest rate of 14% per year: Year 0:<$4,000>, Year 1: $2,000, Year 2: $0, Year 3: $0, Year 4 to indicate a negative number).

A. 214

B. $67

C. 122

D. 1

E. $179

View answer

Correct Answer: C

Question #144

According to the Prudent Investor Rule, the trustee must: - adhere to loyalty, impartiality and prudence - maintain overall portfolio risk at a reasonable level - provide for reasonable ________ of trust investments - act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents - be cost conscious when investing

A. upervision

B. ommitment

C. iversification

D. one of these answers

View answer

Correct Answer: C

Question #145

Which standard deals with the Prohibition against Use of Material Nonpublic Information?

A. II

B. II (4)

C. V (B

D. V (B

E. (A)

F. II (B

View answer

Correct Answer: E

Question #146

If the variance of a probability distribution was computed to be 3.6, what is the standard deviation?

A.

B.

C. one of these answers

D.

E. 2

View answer

Correct Answer: B

Question #147

The portion of the insurance premiums that has expired during the fiscal period is classified as

A. n increase in retained earnings

B. n asset

C. n expense

D. liability

View answer

Correct Answer: C

Question #148

If the senior members of an investment advisory firm are unwilling to disseminate negative information about a firm, the advisory should

A. one of these answers

B. efrain from making an investment recommendation citing proprietary reasons

C. isseminate only factual information about the firm and refrain from making any research comments

D. elease the report without the negative information

View answer

Correct Answer: C

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